K shaped recovery in India: Basics Explained

READ: India’s K-shaped recovery debate has economists divided | Mint (livemint.com)

There is no consensus among economists regarding whether India is indeed in the throes of a K-shaped recovery or whether the recovery of India is broad-based. The debate, which has divided economists, got a further fillip with the recent report of State Bank of India(SBI) Research arm paper;

the report said that the “oft-repeated conundrum debating a K-shaped recovery, recovery wherein various segments of the economy recover at different rates, post-pandemic seems at best flawed, prejudiced, ill-concocted and fanning interests of select quarters to whom India’s remarkable ascendance, signaling more the renaissance of the new global south, is quite unpalatable”.

The SBI report cited, declining Income inequality; with more than a third of taxpayers moving to higher income tax brackets; Zomato order by families; and increased consumption of the bottom 90 per cent of the population post-pandemic, to debunk the K-shaped recovery thesis.

National Statistical Office (NSO) latest estimate of India’s real GDP growth is also bullish with the projection in 2023-24 is  7.3 percent, in comparison to 7.2 percent a year ago.

The economist who subscribes to K-shaped recovery gave the following arguments

  • As long as those at the bottom of the income pyramid regain the ability to spend, growth cannot be termed even or broad-based.
  • Only sectors like infrastructure like steel, cement, and machinery saw upward growth However, consumer-oriented industries and the agricultural sector have witnessed a setback.
  • consumption growth not being very broad based and the recent estimates (FY24) restate it.
  • Though private investments are picking up but it is largely being driven by the central government and the states.

LEARNING FROM HOME/ WITHOUT CLASSES/ BASICS

K-shaped recovery is one in which one portion of the economy is bouncing back and increasing in value, and the other continues to suffer the effects of the recession. It is based on the premise that when an economy recovers following a recession, different aspects of the economy take on different paths to recovery.

This recovery can be explained by the fact that after covid pandemic many countries exhibit the contradiction of  Millions  remain unemployed, while the wealthiest have grown their fortunes—reinforced by a strong stock market.  It exhibits structural effects on the economy; Inequality is rising, employment is stagnating for many, and technological adoption is accelerating.

L-shaped recovery: An enormous recession where the economy takes more than a year to recover.

U-shaped recovery: A sharp decline followed by a time where the economy is sitting at a low point, before finally recovering.

W-shaped recovery or double-dip recession: When the economy hits rock bottom followed by a temporary increase and finishing with another decline.

V-shaped recovery or hockey stick recovery: When there is a sharp decline followed by a quick recovery.

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