India’s economic rebound faces growing risk of viral variants

A boy sells umbrellas as it rains in Hyderabad on Friday. Associated press

India’s economic rebound, already weakened in recent months, could lose momentum as coronavirus variants pose the greatest threat and inflation rises, according to a Reuters poll of economists.

The latest survey results suggest tough policy decisions await the Reserve Bank of India, which has already experienced two consecutive months of inflation above the upper bound of 6% of the range it tolerates.

The RBI said last week that the economic outlook has improved and the rise in inflation will be transient, echoing the views of most major central banks.

But the rapid spread of the Delta variant in some states – and it is becoming dominant around the world – has raised doubts as the country faces a devastating wave of COVID-19.

The July 15-22 survey of 52 economists showed a third consecutive downward revision of growth prospects for the current fiscal year 2021-22, but also the third such revision in the following year.

Inflation in India
Image used for illustration purposes.

About two-thirds of economists, or 23 of 36, who answered a supplemental question said variants of the virus were the greatest risk, while only a handful cited high inflation.

“The resurgence of cases and (any) emergence of new variants are notable risks to the economy for the remainder of the year, especially at a time when immunization coverage does not reach critical mass,” he said. DBS economist Radhika Rao.

“Restoring the brakes on movement risks further damage to the informal sector, which contributes nearly half of national production and employs a majority. A separate Reuters survey of global health experts last month concluded that another wave of infections and COVID-19 in India were likely by October.

After contracting in the previous fiscal year at its fastest annual rate since the record began more than four decades ago – one of the hardest hit in Asia, the economy is expected to grow by 9, 4% during the current financial year.

The last time the economy grew this fast was in 2010.

The latest consensus forecast was down from 9.8% in the previous May poll, itself down from 11.0% in April, and slightly lower than the RBI’s latest projection of 9.5. %.

Asked about their worst-case scenario for this fiscal year, economists provided a median of 7.0%, in a range of 5.0% to 9.0%. Either way, growth is expected to slow to 6.9% in fiscal year 2022-2023.

Although inflation is expected to drop from 6.3% in the latest measurement, the consensus was that it would on average be above the midpoint of the RBI’s medium-term target of 2% to 6% at least until early 2023.

Inflation is expected to average 5.5% and 4.7% in the current fiscal year and the next, compared to 5.0% and stable with 4.7% expected in May.

For now, the RBI is expected to keep its key rates unchanged as inflation appears to be emerging from a peak.

But the consensus pointed to two 25 basis point hikes each next fiscal year, raising the repo rate to 4.50% by the end of March 2023, with 32 economists now predicting at least one hike by the start of the year. year against 24 in the previous survey.

“Despite the concerns about growth, we believe the RBI will eventually need to act to bottle the inflation genius so it doesn’t lose control. We therefore expect the normalization of monetary policy to start fairly quickly, ”noted Kunal Kundu, Indian economist at Societe Generale.

“However, with a third wave of the pandemic appearing to be a certainty, with experts pointing to the less than desirable pace of vaccination, the precise timing of normalization remains uncertain.”

Indian stocks are at an all-time high: Indian stocks ended higher in a volatile session on Friday, gains in IT stocks and the meteoric debut of food delivery startup Zomato more than made up for losses in the food industry. telecommunications.

The blue-chip NSE Nifty 50 index ended up 0.2% at 15,856.05 and the benchmark S&P BSE Sensex ended 0.26% at 52,975.80.

Zomato Ltd closed nearly 65% ​​above its offer price at Rs 125.20, reflecting investor interest in internet-based consumer startups expected to thrive during the COVID-19 pandemic.

Telecommunications stocks, however, fell after India’s highest court rejected a plea from mobile operators asking for corrections to what they called errors in the government’s calculation of their dues.

Shares of struggling telecommunications company Vodafone Idea fell 14.6% to their lowest level since October 20, while Bharti Airtel lost as much as 2.6% before ending slightly higher.

Computer stocks ended up 0.38%, with Persistent Systems, Mphasis Ltd and Wipro Ltd gaining the most on the sub-index, with analysts saying most weekly moves in domestic markets were limited to a range.

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