RBI study: Omicron may be flash flood, not wave – Times of India

MUMBAI: The ‘State of the Economy’ report published by the RBI has said that the trajectory of the new Covid variant in South Africa has boosted hopes that Omicron will be more of a flash flood than a wave.
The report said that while India encountered headwinds from a rapid surge in infections due to Omicron, aggregate demand conditions are resilient amid upbeat consumer and business confidence and an uptick in bank credit. It also pointed out that manufacturing and several categories continue to remain in expansion mode.
“Data from the UK and South Africa suggest that such infections are 66-80% less severe, with a lower need for hospitalisation. This has brightened near-term prospects and financial markets reflect this optimism,” the report said. The ‘State of the Economy’ report is authored by RBI staff and is published in the central bank’s monthly bulletin.
In contrast, global outlook remains clouded by considerable uncertainty. “Inflation continues to mount across geographies amid disruptions in production, supply chains and transportation. Consequently, the divergence between monetary policy stances across jurisdictions has widened,” the report said. Despite inflationary pressures, it made a case for policies favouring growth. “There are indications that supply chain disruptions and shipping costs are slowly easing, although the waning of inflation may take longer. This provides a window of opportunity to focus all energies on accelerating and broadening the global recovery”.
The bulletin includes a study on consumer confidence. According to this, despite the low perception of the prevailing situation, respondents’ expectations for the year ahead showed faith in economic recovery after the subsidence of the pandemic. This is despite the pandemic severely denting consumer confidence in India, which reached historic lows as the repercussions of Covid unfolded. “Sentiments of households across strata were influenced by the spread of infections and fatalities. There was the enduring impact on consumers’ sentiments on their financial conditions as well as the general economic situation – with the latter increasingly driven by the former,” the study said.
Consumers in cities severely hit by the pandemic expressed more negative sentiments as compared to respondents in the other cities.
Another report in the RBI bulletin called for a second green revolution along with the next generation of reforms to make agriculture more climate-resistant and environmentally sustainable. It said that while the farm sector has been resilient during the pandemic, there are new emerging challenges including climate change.