"K" Shaped Recovery - Daily Current Affair Article

References

Recently Sajid Chinoy, chief India economist in JP Morgan said that the prospects of economic recovery after COVID-19 are increasing in India and around the world. This recovery is in the form of "K" shape recovery.

Introduction

  • Corona epidemic in 2020 has negatively affected the world economy including India. The lockdown in many countries of the world including India had slowed down the pace of the entire global economy. It had a great impact on India and India's economic growth had become negative.
  • The hopes of the removal of lockdown and the Corona vaccine again gave the economy a boost. In this context, JP Morgan's Chief India Economist Sajid Chinoy said that the economy of the country and the world is recovering in the "K" shape.

What is "K" shape recovery?

  • The state of "K" shape recovery in an economy comes when different sectors of the economy are recovering at different speeds. The "K" shape recovery leads to widespread changes in the structure of the economy and the economic consequences and relationships change radically before and after the recession.
  • This type of recovery is called K-shape because the position can be similar to the two arms of the Roman letter "K" when the paths of different sectors of the economy move together.
  • The term "K" shape recovery rose to prominence because of the economic impact of the 2020 COVID-19 pandemic and its use to describe the uneven economic recovery in various sectors, industries, and groups of people in the economy.
  • Unlike other letter-shaped descriptors (L-shape, V-shape, U-shape or W-shape) of the economic downturn and recovery (which describe the path of economy-wide macroeconomic aggregate variables such as GDP or total employment) ) while "K" shape recovery describes the path of different economic variables, such as income in different economic sectors or employment in industries relative to each other.

Current Recovery Status: -

  • In this time's "K" shape recovery,one is at the top of the household pyramid who saved his money during the corona. This savings of household will help to boost consumption and demand in the future.
  • While the economic status of the lower and lower-middle-class households is not good because unemployment and lack of economic activity have affected their income permanently.
  • Agriculture has become the carrier of the economy in India during 2020. While the logistic sector has been badly affected. At the same time global demand for electric cars increased, due to which Elon Musk became the world's richest person.

"K" shape recovery status in India

  • Since October, car registrations have increased 4 percent in passenger vehicle registrations (final consumption), while two-wheelers have registered a growth of 15 percent.
  • The top 10 percent of households in India are responsible for 25–30 percent of total consumption, in this situation it is clear that consumption-based demand will increase. This demand will give impetus to industries by promoting production further.
  • High-income households have benefited from high savings for two quarters. The current consumption expenditure is made possible by these savings.
  • But the labor industry, where the workers have to suffer mental and economic suffering, needs to be reformed. Industries cannot be promoted without reforming the labor sector. Along with this, a cut in the income of the workers will also reduce the demand, in this situation improvement in the labor sector is necessary.
  • COVID-19 has started an effective income transfer from poor to rich. This demand will be constrained in origin, as the poor have a higher marginal propensity to consume, i.e. the poor tend to spend rather than save, compared to the higher income group.
  • COVID-19 reduces competition by increasing income and opportunity inequality, in that case it can curb trend growth in developing economies by damaging productivity and tightening political economy constraints.

The conclusion

The COVID-19 has resulted in structural changes in the economy. Different economic sectors are recovering at different speeds. But in the overall analysis, increasing demand in the economy is emerging as the most important situation. It is very important to increase the income of the farmers and laborers of India internally, otherwise, it will affect both production and demand.

General Studies Question Paper 3
  • Economy

Mains Question:-

  • What do you understand by "K" shape recovery? How is it different from other indicators? Do you agree that the Indian economy is going with "K" shape recovery?