Indian economy recovery – Strong recovery despite 3 COVID waves

The Treasury said in a semi-annual report that India’s acute second wave weighed significantly on GDP through the middle of 2021, postponing Indian 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, around 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. 
 
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.

Indian economy recovery

Following a current account surplus of 1.3 percent of GDP in 2020, India’s first since 2004, the country’s current account deficit increased to 1.1 percent of GDP in 2021. 
 
A substantial deterioration in India’s trade deficit, which extended to USD177 billion in 2021 from USD95 billion the previous year, prompted the return to a current account deficit, 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. 
 
The goods and services trade surplus in 2021 was USD45 billion, up from USD34 billion in the four quarters leading up to December 2020. In 2021, India’s bilateral goods trade surplus increased by 37% to USD33 billion, while the bilateral services surplus increased by 29% to USD12 billion. 
 
As the US economy recovered significantly in 2021, the recovery was mostly driven by increased US demand, notably for goods, according to the Treasury.