Pointers that India is witnessing a K-shaped recovery

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Pointers that India is witnessing a K-shaped recovery

  • Recently, there has been great chatter about a V-shaped recovery for quite a while, ever since the first lockdown following the novel coronavirus pandemic.
  • However, some of the view that there is undeniably some type of recovery, but one can hardly label it V-shaped.
  • The recovery we see today is more K-shaped than V-shaped, with various groups and industries recovering much more rapidly than their counterparts.

Economic Recovery

  • Economic Recovery is the business cycle stage following a recession that is characterized by a sustained period of improving business activity.
  • Normally, during an economic recovery, GDP grows, incomes rise, and unemployment falls and as the economy rebounds.
  • Economic recovery can take many forms, which is depicted using alphabetic notations. For example, a Z-shaped recovery, V-shaped recovery, U-shaped recovery, elongated U-shaped recovery, W-shaped recovery, L-shaped recovery and K-shaped recovery.

What is a K-shaped recovery?

  • A K-shaped recovery happens when different sections of an economy recover at starkly different rates.
  • A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession.
  • This type of recovery is called K-shaped because the path of different parts of the economy when charted together may diverge, resembling the two arms of the Roman letter “K.”

The V-Shaped vs K-shaped debate

  • There has been great discussions and speculations about the economic recovery for quite a while, ever since the pandemic.
  • However, experts are divided on the type where for some it is more K-shaped than V-shaped, with various groups and industries recovering much quicker than others.
  • It is also corroborated by the fact that the pandemic distinctly affected different sectors.

Impacts of Regressive Taxation

  • The decision to lower the corporate tax rate to provide for an ecosystem for economic growth has resulted in recovery in some sectors.
  • The high excise duties and tax rates on fuels and consumer items has led to inflation and created more problems for the lower and middle class.
  • The combined effects of these policies indicate that a K-shaped recovery could be visible, if at all.

Job loss and MGNREGA

  • The pandemic resulted in huge unemployment in the informal economy and led to further destitution in the country.
  • The 34% cut in the allocation for MGNREGA in the Union Budget this year has aggravated the situation.
  • The delay in payments reduces the chances of timely purchase of essentials adding salt to the wounds.

Government stimulus and economic growth

  • There is a direct relationship between government stimulus and economic growth and the money multiplier effect shows this phenomenon.
  • Providing disposable income to those who have more tendency to spend than save will lead to growth in the economy.
  • The Government needs to increase progressive taxes and reduce regressive taxes to ease the financial pressure on lower-income households.