India’s economic recovery strengthens in Q2 but Omicron looms
India’s economy grew 8.4 percent in the quarter ending September compared with a year earlier.
Students in Mumbai, India, apply finishing touches to paintings made to create an awareness of the new coronavirus Omicron variant, which some analysts warn could pose a threat to the momentum of India's continuing economic recovery [File: Niharika Kulkarni/Reuters]
30 Nov 2021
India’s economy continued to rebound strongly in the quarter ending September, as further rollbacks of COVID-19 restrictions helped boost consumer spending. But the emergence of the Omicron variant could pose a threat to that momentum, some analysts warn.
India’s gross domestic product (GDP), which measures the output of goods and services in the country – grew a brisk 8.4 percent in the quarter ending September compared with a year earlier, government data showed on Tuesday.
That marked the strongest recovery rate of the world’s major economies and followed on from the previous quarter when India’s year-over-year growth was a massive 20.1 percent.
Gains in the three months ending in September (the second quarter of India’s fiscal year) were broad based, with most components of GDP contributing to the nation’s growth. Government spending was strong, as was consumer spending, and agriculture. A notable bright spot was the renewed appetite for customer-facing services that were hit hard by COVID restrictions earlier this year.
That broad strength helped shore up analysts’ forecasts for healthy full-year growth, but the emergence of the Omicron variant of COVID-19 has injected uncertainty into the outlook.
“Reopening gains, pent-up demand, better farm output, higher public spending, and service sector restart have been crucial sources of support in the quarter,” said Radhika Rao, an economist at DBS Bank, Singapore. “We maintain our full-year growth forecast at 9.5 percent, with an eye on the evolving situation with the new (COVID-19) variant.”
One component of GDP which continues to lag is factory activity. Like all economies around the world, India is navigating supply chain snarls, higher energy prices and shortages of raw materials that are holding back manufacturing.
“Global semiconductor shortages have weighed on vehicle production, while coal shortages are likely to have taken a toll on industry this quarter,” said Shilan Shah, senior India economist for Capital Economics.
Shah also sees potential clouds gathering over the recovery from Omicron.
“With vaccination coverage still very low, there remains a risk of renewed virus outbreaks,” he said. “The new Omicron strain of the virus detected in Southern Africa could end up being the factor that crystallises these concerns if it reaches India.”