New restrictions because of rising COVID-19 cases could lower India’s economic growth by about a quarter, says HSBC Holdings Plc.
Pranjul Bhandari, an economist at HSBC, said the economic cost will be there. “But hopefully it will just be about a third or lower than the economic cost of previous waves,” she said. “For the full year ending March 2022, GDP growth could be 25 basis points lower than we had earlier estimated.”
Bhandari noted that the rapid rise in COVID-19 cases could defer RBI rate hikes for a while, but eventually it would need to act due to rising price pressures. “Data next week is likely to show consumer price gains hit 5.8% last month, inching closer to the ceiling of the RBI’s 4-6% target range, while wholesale inflation stayed elevated in double digits,” she said.
“That’s something the RBI can’t ignore over the next couple of months and yet, it can’t press on with monetary policy normalization very rapidly. We believe RBI’s normalization is going to be a little softer, perhaps delayed by a meeting or two.”
It should be noted that India is due to release its first official estimate for annual GDP. Bloomberg economists are expected to show an expansion of 9.3%, slower than the 9.5% growth projected by India’s central bank and the International Monetary Fund.
The Indian economy is likely to take a hit as India witnessed a five-fold increase in COVID-19 infections and the most since early June of 2021. The new infections are related to the variant of concern – Omicron. Data shows that daily infections have nearly tripled over two days this week. Experts are concerned that if the cases continue to rise, the country’s healthcare could be left overwhelmed like it was during the second wave of the COVID-19 pandemic.
Several cities across India have imposed restrictions to keep infections in check. Overnight curfew and weekend curfew has been implemented in Delhi-NCR, Bengaluru and Mumbai respectively, with weekend movement restrictions. Non-essential workers have been asked to stay home.