Despite three severe Covid-19 waves, the Indian economy has returned strongly, according to a report to Congress released on Friday by the US Treasury.
The Treasury said in a semi-annual report that India’s acute second wave weighed significantly on GDP through the middle of 2021, postponing the country’s economic recovery.
“However, as India’s vaccination rollout increased, economic activity rebounded sharply in the second half of the year,” the Treasury noted, praising India’s vaccination efforts. It reported that by the end of 2021, about 44% of India’s population had been fully vaccinated, and that after shrinking 7% in 2020, output had rebounded to pre-pandemic levels by the second quarter of 2021, with full-year 2021 growth of 8%.
India has been dealing with a third large outbreak caused by the Omicron type since the beginning of 2022, but the number of deaths and broader economic consequences have been minimal, according to the report.
In the face of the pandemic in 2021, the Indian government continued to provide economic support to the economy, according to the report. The authorities expect that the overall budget deficit for the fiscal year 2022 would be 6.9% of GDP, which is greater than deficits before the pandemic, according to the report.
The Reserve Bank of India has kept its key policy rates steady at 4% since May 2020, according to the Treasury, but it began gradually unwinding exceptional liquidity measures designed to boost growth during the early stages of the coronavirus pandemic in January 2021.
After a current account surplus of 1.3 percent of GDP in 2020, its first since 2004, India’s current account deficit increased to 1.1 percent of GDP in 2021.
A substantial deterioration in India’s trade deficit, which extended to $177 billion in 2021 from $95 billion the previous year, prompted the return to a current account deficit, according to the report.
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Furthermore, given the economic recovery and rising commodity prices, notably energy costs, goods imports grew particularly quickly in the second half of 2021, resulting in a 54 percent year-on-year increase in 2021. India’s exports increased by 43% in 2021, though at a slower rate than imports, according to the report.
According to the report, India’s services trade surplus (3.3% of GDP) and income surplus (1.3% of GDP) largely offset the country’s larger goods trade deficit.
According to the Treasury, remittances increased by 5% in 2021, reaching $87 billion, or 2.8 percent of GDP, and India’s external position was substantially in line with economic fundamentals and acceptable policies in 2021, with an expected current account gap of 0.3 percent of GDP.
According to the research, India’s bilateral trade imbalance with the US has increased dramatically in the last year. Between 2013 and 2020, India and the United States had $30 billion in bilateral goods and services trade surpluses.
The goods and services trade surplus in 2021 was $45 billion, up from $34 billion in the four quarters leading up to December 2020. In 2021, India’s bilateral goods trade surplus increased by 37% to $33 billion, while the bilateral services surplus increased by 29% to $12 billion.
According to the Treasury, the expansion was fueled mostly by increased US demand, notably for goods, as the US economy recovered well in 2021.