Prerana Goenka and Tushar Goenka

BENGALURU, (Reuters) – The Omicron coronavirus variant is not causing any downside risks to India’s economy. According to economists polled for Reuters, New Delhi should be focusing on fiscal prudence when it comes to its February budget.

Asia’s third-largest economic sector is currently experiencing an increase in coronavirus infections due to the new variant. Most states have had to put in place local restrictions.

A poll of 45 economists was conducted Jan. 11-18. It forecast that 5.0% GDP growth would occur this quarter. This is a significant downgrade on December’s 6.0%. The year ended at 9.2%, as opposed to 9.5% in the month-long poll.

Nearly two-thirds responded to the additional question (21 of 32) and said that there were limited negative aspects to the outlook for this remaining fiscal year, which concludes in March.

It was downgraded by nine of the ten respondents, while two others said that it is at high risk. From 7.5%, the median projection of growth for next year has been raised to 8.0%.

The current wave of restrictions are not as severe as the ones that followed. Madhavi Arora of Emkay Global Financial Services, the lead economist said that Omicron and its economic impact are a Jan-March story. She believes it will not cause as much damage in future fiscal years.

Arora believes that the April quarter will see an additional boost once Arora’s third wave is over, which it most likely will.

According to the latest poll, economic growth was also forecast at 14.7% in the same quarter.

The inflation was forecast to reach 5.8% in the quarter, then drop, staying below the 6.0% threshold of the Reserve Bank of India until the end of fiscal 2023-24. This will put pressure on the Bank to raise future interest rates.

Graphic: Reuters Poll: India economy and budget outlook: https://fingfx.thomsonreuters.com/gfx/polling/lbpgnjdwxvq/India%20economy%20and%20budget%20outlook%20-%20January%202022.png

India’s Finance Minister Nirmala Sitharaman presented the 2022/2023 Federal Budget to India on February 1. This budget will provide new targets for fiscal deficits and government spending.

Answered to the question, 16 percent of those surveyed said expansion rather than fiscal prudence, in spite of pandemic risks.

Miguel Chanco (senior Asia economist, Pantheon Macroeconomics) stated that India and other emerging countries will need to begin thinking about consolidating COVID-19-year budget deficits in an international monetary environment with the U.S. Fed starting to normalise its policy.

We expect quite aggressive tightening by the Fed in this year’s fiscal year, which will increase borrowing costs for India as well as for all EMs.

The nation’s fiscal deficit jumped to 135.1% during the April-November of last year, but it has fallen to 46.2% in the current financial year. This is due to an increase in tax collection.

Fiscal deficit targets for the next fiscal year were predicted at 6.0% and FY 2023/2024 at 5.5%, respectively, which are lower than last year’s 6.8%.

Robert Carnell of ING’s Asia Pacific Research, stated that “they will be quite conservative with spending or revenue projections.”

Omicron has more revenue concerns than it is, and I don’t think that you should spend on Omicron being bad. That is due to the fact that targets can be missed.”