K-Shaped Recovery

The K-Shaped Economic Recovery Explained

K-Shaped Recovery

A K-shaped recovery happens when various sectors, industries, or groups of people in the economy recover at various speeds, periods, or amounts. In this type of recovery, certain industries flourish while others stagnate or even dip more. K-shaped recoveries are typically brought on by pre-existing discrepancies or by a recession that has distinct effects on different populations and groups.

The image below is an example of a K-shaped recovery wherein certain industries or sectors perform well and grow while others go into decline and continue to stagnate.

The K -shaped recovery

A K-shaped recovery could be caused by a variety of distinct economic events. First, a K-shaped recovery can represent the creative destruction that takes place in an economy during a recession when new technology and industries displace older ones. Second, it may show how the government has responded to a downturn in terms of fiscal and monetary policy, which might favor particular parts of the economy more than others.

Alternately, it may merely reflect the disparate effects that the initial recession had on the various sectors of the economy, particularly when the recession occurs concurrently with or is brought on by adverse real economic shocks that target particular sectors of the economy and may have longer-lasting effects on those sectors than on others. Keep in mind that these three requirements might not be exclusive of one another; they might all be at work in a particular K-shaped recovery together with additional elements.

It is hard to say for sure if India is experiencing a K-shaped recovery. However, certain indicators which indicate a K-shaped recovery in India are:

– Two-wheelers are a symbol of India’s small businesses as well as the economic position of the lower and middle classes. According to a survey by the analytical firm CRISIL, two-wheeler sales are predicted to fall between 3% and 6% in 2021. This is on top of a lower base that was already impacted by the pandemic in 2020. The actual decrease in two-wheeler sales from before the pandemic must be significantly greater as a result of the base effect. Two-wheeler sales are at their second-lowest level in seven years. It is crucial to remember that among two-wheelers, entry-level vehicles are the ones most adversely impacted. The festival season was supposed to address this issue, but it failed to do so. On the other hand, premium cars and premium motorcycles have been resistant to the pandemic slowdown.

– Over 5 lakh people lost jobs after the lockdown started. Post this, there was a need for an increase in NREGA expenditure to accommodate more people for jobs. However, in the year 2021-2022, the Government of India cut its budget allocation towards MGNREGA by 34%. Thus, the unemployment rate didn’t ease off to pre-covid levels even after the lockdown was lifted.

A deeper dive into the data of disposable income of the lower, middle, and upper class will show a similar trend which is the reason for the K-shaped recovery.

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