Omicron Won’t Derail Economic Growth and Job Prospects: Says RBI

Narrating the recent Omicron surge as “a flash flood than a wave”, the Reserve Bank of India’s (RBI) report claimed the country’s economy to be on strong footing despite the rapid surge of new and more transmissible covid 19 cases. The near term economic prospects remain unaffected, reported RBI.

“On the vaccination front, India has made rapid strides. On the Omicron variant, the recent data from the UK and South Africa suggest that such infections are 66 to 80% less severe, with a lower need for hospitalisation,” the recently published RBI Bulletin noted.

Community Mobility indicators revealed that in January 2022, the public movement dropped in some cities but was higher compared to covid 2nd wave and remained above its pre-pandemic level. There has been an increase in electricity generation which reached pre-pandemic levels, RBI said.

As the new year 2022 arrived, covid recovery in India faced headwinds as in the rest of global economies due to a rapid surge of Omicron cases. However, business and consumer confidence haven’t been dented that severely and acted as the silver lining for the nation’s economy, RBI highlighted.

The RBI said that the trajectory of Omicron, the new Covid-19 variant, is on a declining mode and the average demand conditions look strong and resilient with consumer and business confidence remaining upbeat including an increase in aggregate bank credit levels for doing business in India.

“Nonetheless, amidst upbeat consumer and business confidence and an uptick in bank credit, aggregate demand conditions stay resilient, while on the supply front, rabi sowing has exceeded last year’s level and the normal acreage,” the RBI reported.

The RBI report mentioned that reduction in inflation may not fade away too quickly and it is being monitored closely. There are signs of improvement as supply chain disruptions are slowly easing and burgeoning shipping costs are steadily reducing, RBI said.

There are signs of recovery and expansion in manufacturing and several categories of service sectors, India’s Central Bank reported. It also highlighted saying, “Overall economic activity in India remains strong, with upbeat consumer and business confidence and upticks in several incoming high-frequency indicators.”

The RBI re-emphasized that the new covid variant caused much less hospitalization and sounded optimistic on the near-term economic prospects and financial markets. India’s digital payment ecosystem is also in rapid expansion mode as opposed to a clouded and uncertain global economic outlook. “Inflation continues to mount across geographies amidst disruptions in production, supply chains and transportation,” the report mentioned.

There are widening differences observed in monetary policy stances of different countries due to economic uncertainty caused by higher inflation, disruptions in production, supply chain and transportation, the RBI noted. On the positive side, this also opens a window of opportunity to mobilize all resources on enhancing the global recovery, it added.

As per the Commerce and Industry Ministry report, India has registered the highest-ever annual FDI inflow of USD 81.97 billion during FY21 as several foreign investors preferred company formation in India.