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  • 30 July, 2021

  • 12 Min Read

K shaped recovery vs V shaped recovery in India

K shaped recovery vs V shaped recovery in India

What is a K-shaped recovery?

  • A K-shaped recovery is a post-recession scenario in which one segment of the economy begins to climb back upward while another segment continues to suffer.
  • If illustrated, the economic growth would roughly resemble the two diverging diagonal lines of the letter "K" - hence the name.
  • This is quite unusual. Traditionally, when the economy dips, it's felt throughout every industry and demographic, and vice-versa when the economy eventually recovers. Of course, the impact is often greater on some than on others. But overall, nations and people all experience economic or business cycle changes as one entity.

What is a V-shaped recovery?

  • A V-shaped recovery means that the economy bounces back quickly to its baseline before the crisis, with no hiccups along the way.
  • Growth continues at the same rate as before. This is one of the most optimistic recovery patterns because it implies that the downturn did not cause any lasting damage to the economy.

What is the news?

  • Chief Economic Adviser (CEA) Krishnamurthy Subramanian acknowledged on Thursday that some parts of the economy may be witnessing a K-shaped recovery, as smaller firms and urban poor had been hit harder by the pandemic, but stressed that India’s overall economic rebound remains V-shaped.
  • There has been a V-shaped recovery in the last year.
  • Some commentators may say, therefore, this is a K-shaped recovery. But that is more at the sectoral level… at the macro level, there has been a V-shaped recovery.
  • The CEA also projected that a third COVID-19 wave, if it occurred, may be of low intensity with a much lower economic impact as India would get closer to herd immunity, based on the government’s target to vaccinate the entire adult population by December.
  • Inflation should be rangebound going forward, despite the rise in commodity prices. It’s likely to be between 5% and 6% but certainly within the [RBI’s] tolerance range.

Terminologies for recovery shapes in India

What is a U-shaped recovery?

  • Under this scenario, the economic damage lasts for a longer period of time before eventually reaching the baseline level of growth again. The economy bounces back, but the damage at the bottom lingers for a while.

What is a W-shaped recovery?

  • In a W-shaped recession, also called a double dip, the economy moves beyond a recession into a period of recovery before falling back down again into another recession. The initial recovery is sometimes known as a bear market rally.
  • One example: After the oil and inflation crises in 1979, the U.S. fell into two back-to-back recessions in 1980 and 1981.

What is the Swoosh shaped recovery?

  • A recovery scenario resembling the Nike “swoosh” logo is characterized by a steep drop and a gradual recovery, meaning that it takes much longer to return to pre-crisis growth levels than it took to fall into recession.
  • A variant of this is a square root-shaped recession where growth recovers but then plateaus before reaching pre-crisis levels.

What is an L-shaped recovery?

  • An L-shaped recovery is the most pessimistic scenario. In this shape, the economy recovers to a certain degree from a steep drop, but growth never reaches pre-crisis levels for years, if at all. A period of economic stagnation follows.
  • The Brookings Institution points out that this is what the 2008 Great Recession looked like: it took six years after that crisis for GDP to return to 2007 levels, and GDP still hasn’t reached pre-recession projections more than a decade later.

Source: TH

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