India’s economy has rebounded strongly despite three significant waves of COVID-19, the US Treasury Department said in a report to Congress on Friday.
India’s acute second wave weighed heavily on growth through mid-2021 and delayed economic recovery, the finance ministry said in a semi-annual report.
“However, economic activity rebounded strongly in the second half of the year as India’s vaccine rollout accelerated,” the Treasury said in praising India’s immunization efforts
By the end of 2021, about 44 percent of India’s population had been fully vaccinated, it said, and after a seven percent drop in 2020, production had returned to pre-pandemic levels by the second quarter of 2021, with growth of eight for the full year 2021 percent.
Since early 2022, India has faced a third major outbreak caused by the Omicron variant, but the number of deaths and broader economic fallout have been limited, it said.
The Indian government has continued to provide fiscal support to the economy amid the pandemic in 2021, it said. Authorities estimate that the total budget deficit for fiscal 2022 will reach 6.9 percent of GDP, which is higher than pre-pandemic deficits, it said.
The Reserve Bank of India has kept interest rates unchanged at four percent since May 2020, according to the Treasury Department, but in January 2021 it began phasing out extraordinary liquidity measures intended to support growth in the early stages of the coronavirus pandemic.
After a current account surplus of 1.3 percent of GDP in 2020, the first surplus since 2004, India returned to a current account deficit of 1.1 percent of GDP in 2021.
The return to a current account deficit was due to a sharp deterioration in India’s trade deficit, which widened to $177 billion in 2021 from $95 billion last year, it said.
In addition, in the second half of 2021, amid the economic recovery and rising commodity prices, especially energy prices, imports of goods rose particularly sharply, resulting in imports growing at 54 percent year-on-year in 2021, at a lower rate than imports and rose 43 percent, it said.
India’s surplus in services trade (3.3 percent of GDP) and income surplus (1.3 percent of GDP) partially offset the broader goods trade deficit.
Remittances increased by around 5 percent in 2021, reaching $87 billion or 2.8 percent of GDP, it said, adding the Treasury estimates that India’s external position in 2021 will be broadly in line with the economic fundamentals and desirable policies, with an estimated current account gap of 0.3 percent of GDP.
According to the report, India’s bilateral trade surplus with the United States has widened significantly over the past year. Between 2013 and 2020, India recorded bilateral trade surpluses in goods and services with the United States of about US$30 billion.
In 2021, the goods and services trade surplus reached US$45 billion, a substantial increase from US$34 billion in the four quarters ended December 2020. India’s bilateral goods trade surplus reached US$33 billion (up 37 percent), while the bilateral services surplus rose to US$12 billion (up 29 percent) in 2021.
The expansion was primarily driven by increased U.S. demand, particularly for goods, as the U.S. economy rebounded strongly in 2021, the Treasury Department said.
Comments are closed.