Omicron has limited downside to Indian economy, economists say

BENGALURU, Jan 19 (Reuters) – The coronavirus variant Omicron poses little downside risk to India’s economy in the final months of this fiscal year, according to economists polled by Reuters who said New Delhi should focus on fiscal prudence in its February budget. .

Asia’s third-largest economy is in the midst of a resurgence in coronavirus cases brought on by the new variant that has forced most states to impose localized restrictions.

The January 11-18 poll of more than 45 economists predicted economic growth of 5.0% this quarter, down sharply from the 6.0% given in December, ending the year at 9.2% from 9 .5% in the previous month’s poll.

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But nearly two-thirds of those who answered an additional question, 21 out of 32, said there was limited downside to the outlook for the rest of this fiscal year which ends in March.

Nine said it was in danger of downgrades and two said it was subject to upgrades. The median growth projection for the next fiscal year has been raised to 8.0% from 7.5% a month ago.

“The current phase of restrictions is not as severe as it was in previous waves. So I think Omicron and the economic damage it inflicts is a January to March story and will only be limited ‘to this exercise,” said Madhavi Arora, chief economist at Emkay Global Financial Services.

Arora believes that the first quarter of the next fiscal year beginning in April will receive an additional boost once the third wave passes, assuming that is the case.

The latest survey also estimated economic growth at 14.7% for the same quarter.

Inflation is expected to peak at 5.8% this quarter and then fall, remaining below the Reserve Bank of India’s upper 6.0% threshold until at least the end of FY 2023-24, easing pressure on the Bank for future interest rate hikes.

Reuters poll: India’s economic and fiscal outlook

Indian Finance Minister Nirmala Sitharaman will present the country’s 2022/2023 federal budget on February 1, setting new targets for government spending, tax revenue, economic growth and budget deficits.

When asked what the government should focus on, 16 out of 23 respondents said fiscal prudence rather than expansion, despite the risks associated with the pandemic.

“India and other emerging markets will have to start thinking about consolidating their fiscal deficits from the COVID-19 year in a global monetary environment where the US Fed is starting to normalize policy,” said Miguel Chanco, senior economist for Asia at Pantheon Macroeconomics.

“We expect quite aggressive tightening from the Fed this year and that will increase borrowing costs not just for India but for most emerging markets.”

The country’s federal budget deficit jumped to 135.1% in the April-November period last fiscal year, but for the current year it has narrowed to 46.2% for the same period, helped by an increase in tax revenue.

The budget deficit target for the next financial year was to be 6.0% and 5.5% for the 2023/2024 financial year, both lower than this year’s 6.8%.

“They will be quite conservative with the spending and revenue projections,” said Robert Carnell, head of Asia-Pacific research at ING.

“It’s really more of an Omicron revenue concern, so I don’t think you should haphazardly spend Omicron being bad. Because it causes targets to be missed at that time.”

(For other Reuters Global Economic Survey articles: read more)

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Reporting by Prerana Bhat and Tushar Goenka; Poll by Devayani Sathyan and Md Manzer Hussain; Editing by Ross Finley, William Maclean

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