Candidates are expected to write about K shaped recovery in economic perspective. Explain phenomenon in the recent context how it was used to refer the post pandemic economic recovery.
Introduction
It is clear that India’s economic recovery is two-speed, also called K-shaped by many economists. The two speeds refer to a higher speed enjoyed by the relatively affluent income class, or those industries which have benefited from the pandemic, lockdown, and work-from-home restrictions.
Body
K shaped recovery:
A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes. This is in contrast to an even, uniform recovery across sectors, industries, or groups of people.
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.”
In the present socio economic context:
A K-shaped recovery exhibits wealth inequality, greater corporate monopolies, a continuing racial wealth gap, long-term unemployment for low-income workers, and accelerating technological adoption.
A report by CRISIL indicates that in the year 2021, two-wheeler sales are set to decline by 3%-6% year-over-year on top of a lower base in the year 2020. On the other hand, premium cars and premium motorcycles have been resistant to the pandemic slowdown.
For example Education, for example, is inherently K-shaped in many places and this has become even more skewed due to Covid-19.
The taxation policy of the Government insists on maintaining indirect taxes on fuel and consumer products while lowering corporate taxes.
While inflation soars, the incomes of the middle and lower-middle-class have at best remained constant leading to a sustained loss in disposable income.
Over five million people lost their jobs in October, according to a Centre for Monitoring Indian Economy (CMIE) report. Unemployment coupled with the high food and fuel prices push families into poverty.
The recovery in the stock market and other such financial assets over the past year has been phenomenal but only less than 5% of India directly benefited from the said recovery.
The disproportional benefit of the asset price inflation favouring the upper-middle-class further displays the inherent K-shape of the recovery.
To the extent that Covid has triggered an effective income transfer from the poor to the rich, this will be demand-impeding because the poor have a higher marginal propensity to consume (i.e. they tend to spend-instead of saving) a much higher proportion of their income.
If Covid-19 reduces competition or increases the inequality of incomes and opportunities, it could impinge on trend growth in developing economies by hurting productivity and tightening political economy constraints.
Conclusion
In the absence of policy interventions, India will continue on the path of a K-shaped recovery where large corporates with low debt will prosper at the cost of small and medium sectors. The government will also have to sharpen its focus on capital spending to contain damage to potential growth.
