RBI: India’s economy at risk due to inflation and Omicron

The Reserve Bank of India stated on Wednesday that the Omicron variant of COVID-19 and inflation in prices might pose a huge risk to the Indian economy. The Indian economy witnessed a loss of momentum in the third quarter of 2021 after the new variant of COVID-19 was discovered.

According to RBI’s Systematic Risk Survey (SRS), the broad categories of risks to the financial system—global, macroeconomic, financial market, institutional, and general were recognized as medium in magnitude”. However, the increasing cases of Omicron and rapid inflation pose a major risk for these systems. The global and financial markets are at a higher risk than others.

Increased COVID-19 cases make the situation uncertain.

The Reserve Bank said in its latest Financial Stability Report that the level of GDP exceeded pre-pandemic levels (July-September 2019) for the first time since the pandemic struck. The growing cases of Omicron make the situation uncertain and corrections to stop this depletion still remain unprecedented.

“Commodity prices, domestic inflation, equity price volatility, asset quality deterioration, credit growth, and cyber disruptions were rated as major risks.” stated in RBI’s Financial Stability Report 2021.

The latest financial stability report also suggested that inflationary pressures have increased significantly in recent months. The advanced economies drove the 30%. The cost of basic necessities like food has also gone above their long-term growth rates.

Scope for recovery in case of losses in the Indian economy:

The Indian economy suffered a huge loss during the second wave of COVID-19. As soon as the country started recovering, a new variant paved its way to create another risk factor for the economy.

Respondents to RBI’s systematic risk survey believed that the Indian economy would recover from the fallout of the COVID-19 pandemic in a span of 1-2 years; sectors such as tourism and hospitality, aviation, automobiles, MSMEs, real estate, retail trade, and entertainment might show a slower recovery rate.

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