K-shaped recovery of Indian economy, and hit by COVID-19 pandemic

The K-shaped recovery of Indian economy is now a well-established fact. Govt. needs to act.

 K-shaped recovery of Indian economy, and hit by COVID-19 pandemic

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• The story: Latest round of the ICE360 Survey 2021 conducted by PRICE (People’s Research on India’s Consumer Economy) Mumbai, showed a K-shaped recovery of Indian economy, hit by the COVID-19 pandemic. The survey was conducted between April and October 2021, covered 2,00,000 households in the first and 42,000 households in the second round.
• Key points: The annual income of the poorest 20% of Indian households, constantly rising since 1995, plunged 53% in the pandemic year 2020-21 from their levels in 2015-16. In the same five-year period, the richest 20% saw their annual household income grow 39% reflecting the sharp contrast Covid’s economic impact has had on the bottom of the pyramid and the top. The pandemic hit the urban poor most and eroded their household income.

1. This resulted in job losses and loss of income for the casual labour, petty traders and household workers.
2. The pandemic brought economic activity to a standstill for at least two quarters in 2020-21 and resulted in a 7.3% contraction in GDP in 2020-21.
3. While 90% of the poorest 20% in 2016, lived in rural India, that number had dropped to 70% in 2021.
4. On the other hand, the share of the poorest 20% in urban areas has gone up from around 10% to 30% now.

• What is a K-shaped economic recovery: An economic recovery is the business cycle stage following a recession in which GDP grows, incomes rise, and unemployment falls. It can be of differnt shapes like V, U, W, Z, L or K. A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes.

1. This is in contrast to an even, uniform recovery across sectors, industries, or groups of people. A K-shaped recovery leads to changes in the structure of the economy.
2. 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 good and the bad: The Indian economy has some positive aspects and a number of negative aspects. The bright spots are the large firms, the IT and IT-enabled sectors, emergence of unicorns in different areas and the financial sector. The negative aspects are the amount of unemployment and low buying power among the lower middle-class, the financial stress on small and medium-sized firms. The government should target its spending watchfully to not have huge deficits. Announcing a credible target for the country's consolidated debt over the next five years coupled with the setting up of an independent fiscal council to put forward on the quality of the budget would be very useful steps. Budgetary resources can be expanded through asset sales.
• Summary: For the common Indian citizen, loss of income is now a reality. This will affect the recovery of GDP, due to poor bounceback in consumption power of the citizens. That needs some demand-side measures by the government. Various global surveys too have hinted at the rapidly growing chasm between the haves and have-nots in India.
• EXAM QUESTIONS: (1) In the wake of COVID-19 pandemic, give some ideas for inclusive economic growth of India. (2) Explain the essential features of a "K-shaped" recovery. Is India witnessing the same now? Explain.

#economicinequality #Kshaperecovery #recession

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