Will Omicron slow down wheel of economy again?

The entire world is now grappling with the prospect of the new Covid variant, Omicron, bringing about yet another deadly wave of the pandemic. The UK is reporting about 10,000 new cases daily, 73 per cent of new cases in the US comprise of this variant while the Netherlands has shut its entire restaurant industry. So far India has reported about 200 cases of the new variant, but clearly this is just the beginning. The country's hospitals are gearing up for a possible third wave in January or February and there seems to be a kind of resigned inevitability that it will indeed come to pass. Having said that, the good news is that the variant appears to result in much milder symptoms than the original Covid virus and is expected to reduce the numbers needing hospitalization.

The other positive could have been that the country's vaccination percentage has gone up. But the new variant apparently is able to elude the protective cloak of the existing vaccines, which may provide only limited protection. Even so, cases in the US are reportedly far higher for those who are not vaccinated as compared to those who have done so. The debate in this country has now moved on to whether booster doses should be given to those at highest risk as is being done in the UK and the US.

What is equally worrying is whether the new variant will disrupt the economic recovery process in the current fiscal. After the second wave in April and May, there was a gradual opening up of the economy and there has been a distinct bounce back in the organised sector. One positive outcome has been buoyant revenue collections. The Goods and Services Tax (GST) inflows reached the second highest ever level of Rs 1.3 lakh crore in November this year giving a clear indication that trade and industry is moving towards normalcy. Growth projections for the current fiscal are thus pegged by various agencies at around 9-10 per cent though this has to be viewed in the context of a low base with the 7.3 per cent contraction recorded in 2020-21.

On the other hand, the unorganized sector is still in trouble, especially contact-intensive industries which have had to open up more slowly than others. The aviation and hospitality sectors have also had to face serious revenue shortfalls owing to the movement curbs imposed during the first and second waves. The revival in these industries which are large employers, has only begun in the last two months. Not only have hotels and restaurants opened up, but air travel bookings have begun to reach pre-pandemic levels. In such a scenario, fresh movement curbs triggered by fears of a third wave will mean revival will take far longer for these sectors.

Corporate leaders are also concerned about the new developments and their impact on economic recovery. The new FICCI President, Unilever chairman Sanjiv Mehta has noted in an interview that when mobility goes down, it definitely affects discretionary categories which are directly linked to mobility. He maintained that demand will be impacted to the extent a possible third wave curtails mobility. On the plus side, he felt there are now greater agility, resilience and better healthcare, vaccinations and infrastructure.

The issue of mobility is crucial as movement curbs have hit the economy hardest both in terms of impact on supply chains, as well as on contact-intensive sectors. Employment has also been affected and in this case the rebound has not been as fast as in other areas. The Centre for Monitoring Indian Economy has found in its surveys that unemployment levels were at 7.5 per cent as on December 22 as compared to 7.16 per cent in January 2020. But it was as high as 9.1 per cent in urban areas.

Rural employment levels appear to be better at 6.7 per cent but the quality of these jobs has been falling. Thus there is a rise in the kind of low wage work available in the rural job schemes which have had to expand rapidly ever since March last year. In this backdrop, a third wave over the next two months could mean a serious setback to economic activity and also jobs availability. A dip in growth in the fourth quarter which usually records the fastest pace, could mean that the expected revival does not ultimately take place in 2021-22.

India is not the only country facing a potential economic crisis with the advent of Omicron. The US Federal Reserve which has already announced that it will tighten monetary policy by raising interest rates in March next year, may have to revise its plans. In case the new variant continues to expand spread at the current rate, it may have to consider whether the tapering should be delayed for a little while longer. Similarly, the UK and Europe are facing unrest over the prospect of more Covid curbs during the festive Christmas season.

Even as this article is being written reports are coming in of a rise in Covid cases in Delhi from an average of around 50 to 125 per day. The new data has prompted curbs on festive gatherings in several regions including Delhi, Mumbai, Karnataka and Odisha.

The solution right now seems to be to go back to basics. In other words, end the laxity relating to masking in public places and again launch a campaign to promote hand sanitization. Some mobility curbs may have to be imposed for the time being but these will prevent a bigger crisis later on. The economy, however, may slow down again unless the situation is not handled deftly right from the outset. It will be a difficult task to balance healthcare needs and the economy. Centre and states must draw on newly gained expertise from the earlier waves if they are to pass this new test successfully.