India is experiencing a third wave of Covid infections – while its overall impact is expected to be less disruptive than previous waves, some economists are predicting slower growth in the near term.

The economic impact of the new wave could be relatively less severe in the first three months of 2022, Citi economists Samiran Chakraborty and Baqar M Zaidi wrote in a January 9 note.

But they pointed out that the momentum of Indian economic activity between October and December was below expectations, even before the third wave hit.

That led Citi economists to revise down their inflation-adjusted GDP estimates for India for fiscal year 2022. -December quarter, Chakraborty and Zaidi said.

Consequently, they also revised down their growth estimates for fiscal year 2023 from 8.7% year-on-year to 8.3%.

India’s 2022 fiscal year ends in March, and its 2023 fiscal year begins on April 1 and ends on March 31 next year.

Covid cases are rising again in India, with daily figures exceeding 150,000 in recent days.

Government data showed India reported 247,417 new infections over a 24-hour period on Thursday, with the daily positivity rate – which measures the share of positive Covid-19 tests – at 13.11%.

There are more than 1.1 million active cases of infection in the country, according to the data.

India has so far identified 5,488 cases of Covid infections caused by the highly contagious new variant of omicron which was first detected by South African scientists. It is likely that the number of omicron cases in India is much higher than officially reported as it takes time for genetic sequencing to determine if someone with Covid has contracted the new strain.

The predominant strain in India is still delta.

While India’s health care infrastructure is relatively better prepared to deal with the third wave, a rapid rise in cases could potentially push it to the brink again.

“Regional variations in access to healthcare personnel, medical facilities, oxygen ventilators and intensive care underscore the need for proactive action before case numbers escalate beyond metros,” said Radhika Rao, senior economist at Singapore’s DBS Group, in a Jan. 6 note.

The impact of the third wave could potentially worsen in the weeks and months to come. Thousands of pilgrims are expected to gather on the River Ganges in the eastern state of West Bengal this week for an annual festival, local media said.

Last year, a similar large-scale religious gathering was partly responsible for the devastating second wave of infections between February and May.

While the sharp rise in cases has led economists to become more cautious about the outlook for the January-March quarter, they also expect a less severe impact than before.

“We expect much less economic damage from the current outbreak compared to the first two waves of infections, as the economy has adjusted to be more resilient to Covid-related disruptions,” wrote Priyanka Kishore, head of Economics of India and Southeast Asia at Oxford Economics. in a note dated January 8.

Still, she said Oxford Economics had lowered its growth forecast for the January-March quarter by nearly 0.5 percentage points to 2.5% quarter-on-quarter to ‘reflect the third wave of Covid infections’. .

The latest surge is expected to lead to a further decline in private consumption in India as states tighten restrictions to limit the spread of the virus.

She added that the following April to June quarter should be the start of a “more sustainable recovery” because by then a large percentage of the population should be fully vaccinated.

Citi economists said there was reason to hope for a less disruptive Covid wave. They include: lower hospitalization rates — such as what we are currently seeing in cities like Mumbai – a shorter Covid wave cycle, higher vaccination coverage and a weakened link between Covid and economic activity.

“Higher vaccination coverage will help policy makers avoid strict restrictions,” they wrote.

India has fully inoculated nearly 70% of its adult population and launched a vaccination campaign this year for 15-18 year olds.

Oxford Economics’ Kishore says the Reserve Bank of India is unlikely to consider raising interest rates before the second quarter as the central bank seeks to prioritize growth risks over surging economic growth. short-term inflation.

Rising prices are a concern, as retail price inflation India hit a 5-month high in December.

Rao, of the DBS Group, said the RBI last month indicated a preference for “a gradual path towards policy normalization” and deviating from global policy changes – particularly from the US Federal Reserve.

Supply disruptions could potentially keep inflation at the upper end of the RBI’s 2-6% target range in fiscal 2023, according to Rao.

“Persistent inflation and global rate adjustments prompt us to maintain our call for the repo rate to be adjusted by a cumulative 50 basis points in 2H,” she said.