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The Omicron variant of coronavirus has reached India, sending panic waves across the country. Is the third wave imminent? Will the Indian economy go back to the negative growth territory? There are questions galore even as virologists are trying to ascertain the severity of the mutant strain.
The after-effects of the second wave had put the Indian economy in a peculiar situation. The pent-up demand in the western world had led to India clocking high exports and manufacturing sector growth but inflation in the prices of commodities like coal, crude oil, steel and cement led to double-digit inflation in the wholesale price index—something India had not witnessed in a decade.
As the fear of the third wave looms, here’s how the outbreak of the Omicron variant could actually aid the Indian government.
Crude Crash, Inflation and Anti-Incumbency
Between January and November 2021, the price of petrol in Delhi rose by 32 per cent due to a similar rise in the price of international crude oil. The inflation in edible oil prices has been steeper since the beginning of the year, eating into the monthly budget of the lower-income group in India.
The NDA government led by Narendra Modi had a great run in terms of controlling inflation in its first tenure starting 2014. That is why, despite having a lacklustre growth as compared to the Manmohan era, the Modi government did not face a tough task in the 2019 elections. All that started to change this year when the Opposition managed to corner the Centre for not being able to control the price rise in essential commodities. There, however, could be a shift in that narrative.
After the CEO of US-based vaccine maker Moderna recently said that Omicron may be able to bypass the immunity provided by the COVID-19 vaccines, the price of Brent crude oil tumbled by 16.4 per cent, while WTI is down 20.8 per cent—the biggest monthly fall since March 2020.
The impact of the crash in crude oil prices will be witnessed in all other commodities in the coming weeks, bringing down the wholesale price inflation in India. It will also have an impact on the fuel prices that always have a cascading effect on other commodities.
Every government needs to maintain a balance between growth and inflation. If inflation goes through the roof, the high GDP growth loses its narrative in the political economy which, in turn, leads to mass-scale protests. The UPA rule under Manmohan Singh—which saw major protests against that government between 2009 and 2013—was a classic example in the last decade.
Keeping The Bull Run
The spread of the Omicron variant could also lead to the US Fed being forced to delay the tapering of its bond-buying programme by a few more months to ensure that growth does not lose steam for the world’s largest economy that has got used to the free dollar to maintain sustainable growth.
This would have a direct positive impact on the Indian stock markets with the FIIs (foreign institutional investors) having enough liquidity to continue to invest in Indian companies. That, in turn, would allow many Indian companies to go for IPOs in the coming months.
Fearing the Fed’s bond tapering, the FIIs have sold nearly $7 billion worth of shares in the last two months. A continued bull run in the stock markets will help the Modi government have a stress-free listing of the richest government-owned firm LIC which is slated to hit the markets in this financial year.
Headroom For Uttar Pradesh And Other State Elections
By bringing down the prices of essential commodities without having to compromise with its revenue collection from excise duty, the BJP would get a headroom in the upcoming state elections. That, if India manages to ensure that the third COVID wave does not lead to too many deaths even if the COVID cases go up.
The only cause for concern would then be to manage the job losses in the export-oriented sectors, especially textiles, leather, engineering and gems & jewellery. But given the electoral results in the past seven years, it’s evident that the BJP has managed to overcome the narrative of joblessness in the country with ease.
Welfare schemes like Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), Pradhan Mantri Ujjwala Yojana (PMUY), Pradhan Mantri Awas Yojana (PMAY) and free ration to the below poverty line (BPL) families have worked perfectly in favour of the BJP, undercutting any anti-incumbency, especially in the Hindi heartland.
In the long run, though, we may be in an even worse situation. But, in the face of a crucial state election, who thinks about the long run? Definitely not politicians.
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