Omicron spread: Night curfews may affect services sector recovery

With many states imposing night curfews ahead of the Christmas season to curb the spread of Omicron, the nascent recovery in the contact-sensitive services sector -- such as hospitality, tourism, travel, and entertainment -- may be affected.

During the second wave of the pandemic earlier this year, while manufacturing mostly held up, services contracted in May, June, and July, according to the purchasing managers’ index (PMI) data.

During the first wave of the pandemic in 2020, a contraction in the services sector was sharper than in manufacturing and took seven months to return to expansion territory.

Madan Sabnavis, chief economist at CARE Ratings, said the night curfew being announced by states in this last week of December could push back the service sector once again though the impact would depend on how long the restrictions stayed.

“We have seen in the past that once imposed, they are hard to roll back, more so when it is widely believed that the Omicron variant is likely to spread at a faster rate. This may not be good news for the economic recovery and Q4 growth will be pushed back. Q3 will also be affected, given that this week does see heavy spending because it is the last major festival week for the year but the overall impact on Q3 would be less,” he added.

The Indian economy expanded 8.4 per cent in the September quarter, surpassing its pre-pandemic size, as vaccination picked up pace and services returned to normal after the disruptions caused by the second wave of the pandemic in the June quarter. Before the Omicron variant hit India, most economists expected growth to be 9-10 per cent in FY22.

“While this (the night curfews) may not get reflected in a big way in the GDP growth number, it would surely push back these sectors, which, barring airlines, have still not yet reached 60-80 per cent capacity utilisation,” he added.

Aditi Nayar, chief economist at ICRA, said with Omicron warranting caution, the nascent recovery in contact-intensive services might be interrupted.

“Even as restrictions are being selectively imposed, concerns on the transmissibility of this variant and the cloud regarding the efficacy of two shot vaccines could make households avoid activities where social distancing is difficult to maintain,” she added.

Kumar Rajagopalan, chief executive officer of the Retailers Association of India (RAI), said some amount of impact would be there because of the night curfews.

“It is expected that the government will come up with rules balancing lives and livelihoods. Over the last two years, it is now understood that lockdowns are not the way to fight a pandemic like this. We have seen in the past three months that customers want to ensure that they cheer themselves up. As long as those functions are not curtailed, we expect the business to continue,” he added.

Varun Khera, head of the Noida chapter of the National Restaurant Association of India, said all the celebrations that were planned by restaurants around Christmas and New Year in Noida would be cancelled after the fresh restrictions, leading to a huge revenue loss.

“It does not look like that the government restrictions on gatherings will end on January 1. Governments are cautious after the second wave. The Uttar Pradesh government is particularly strict and with elections round the corner. We expect the government to monitor the health situation more closely. Overall, we had seen 70 per cent business recovery for the restaurant sector in Noida. If the Omicron variant had not spread, we would have achieved full recovery in six-eight months. Now that would be pushed back,” he added.