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What is K shaped Economic Recovery?

Tulika Tandon

K-shaped recovery is where certain industries and individuals pull out of a recession, while others stagnate. K-shaped recovery splits any economy into two parts, with decisions across class, racial, geographic, or industry lines. There have been various shapes that have always been talked about in respect of the economy, but K shaped recovery has lately been talked about a lot. 

K shaped recovery talks about a troubling, divergent economic future where the economy rebounds unevenly. Here the wealthy benefit while all others get left behind. 

Explained: K Shaped Economic Recovery

  1. K-shaped recovery happens after a nation suffers a recession.
  2. In this recovery, one segment of the economy begins to climb back upward while another segment continues to suffer. Take a look at the graph below to understand. 

3. The households at the top of the pyramid secure their incomes and savings rates forced up during the pandemic which drives future consumption. 

4. The households at the bottom face continuous setbacks.

India: K shape recovery economy?

India's growth is happening due to the following factors:

  1. India has recovered from COVID more rapidly than many other countries. It has been observed that the activity has jumped to 95% since October and has been growing since then.
  2. This recovery has however not been led by labour and wages. CMIE's labour market survey informs that still only 5% of the total labour employed are back compared to the pre-pandemic scenario. 
  3. The large firms have endured the pandemic situational crisis better and have gained market share but at the expense of the smaller firms
  4. The migration has been observational from larger firms to smaller ones. 

The factors listed above point towards a K shaped recovery and if something is not done by the Government in time, the gap between the rich and the poor would extend which would result in inequality that would be difficult to bridge.  

Implications of the K shaped recovery

  1. With only 10 per cent of the country’s household responsible for 25% of consumption, one can say that till the pent up demand is expressing itself the consumption would get a boost. 
  2. Upper incomes houses have benefited but the lower incomes have lost a lot of savings which is why this could result in permanent loss of incomes. 
  3. The poor have higher marginal propensity than rich but the pandemic has resulted in the transfer of income from the poor to the wealthy.
  4. The inequality would also have an impact on the poor as the productivity is constrained as well as political economy is constrained. 

Way ahead

 A policy is needed to look beyond the coming quarters of the financial year and anticipate the state of the macroeconomy after the savings end. The key lies in incentivising the private sector to begin the re-investment and re-hiring process, setting the economy to a virtuous path.

An investment revival in manufacturing sector depending on the demand dynamics can help in revamping the economy. Exports would benefit from strengthening global growth as the world gets progressively vaccinated

India must develop new avenues to create more investment, more market and thus more jobs for the lower-income groups. This took place in The New Deal in 1935 in the USA. India must take inspiration from that. 

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What is the specific quality of the K shape economy?

The rich grow richer and the poor grow poorer in a K shaped economical recovery.

What is a U shaped economy?

The U-shaped economy is also known as U-shaped learning. It is a typical pattern by which select physical, artistic, and cognitive skills are developed.

What is J shaped economy?

J-shape means that not only is there a recovery, but it has gone up so much that it exceeds pre-recession levels.

What is an L shaped economic recovery?

In an L-shaped recovery is a type of recovery characterized by a slow rate of recovery, with persistent unemployment and stagnant economic growth.

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