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K-Shaped Recovery and Inflation Dynamics
Context:
Uneven K-shaped recovery in India is driving inflation patterns, with food and rural prices rising faster than other goods and services and urban prices, according to the Hongkong and Shanghai Banking Corporation Limited (HSBC), India.
K-Shaped Recovery:
- A K-shaped recovery describes a post-recession scenario where one segment of the economy recovers quickly while another continues to struggle.
- The term symbolises the divergent recovery paths on a line graph:
- The upper part of the “K” represents those recovering rapidly,
- While the lower part represents those lagging behind.
- This disparity can occur across different population groups or industries.
Causes of a K-Shaped Recovery
- A K-shaped recovery is generally caused by a recession at different paces.
- As a “K” letter shape denotes, the economy splits based on geographic, wealth, and industrial characteristics.
- COVID-19 Impact: The term K-Shaped Recovery gained prominence in 2020, highlighting the uneven recovery during the pandemic.
- While millions remained unemployed, the wealthiest grew richer.
- Income Disparity: The India’s Citizen Environment (ICE) 360 Survey 2021 by People Research on India’s Consumer Economy (PRICE) revealed that:
- In 2020-21, the poorest 20% of Indian households saw a 53% income drop, while the richest 20% experienced a 39% increase.
- Industry Impact: Restaurants, hotels, and entertainment were hit hardest, while electronics and web conferencing sectors thrived.
- Sectoral Differences: Salaried workers fared better than self-employed or casual workers.
- Rural areas performed better than urban sectors.
- The household investments recovered faster than private consumption.
- Government Interventions: Monetary and fiscal policies aimed at combating the recession can also contribute to a K-shaped recovery.
Other Types of Economic Recovery
- V-Shaped: Rapid and sudden improvement following a severe fall, usually after a one-time economic shock.
- U-Shaped: Prolonged economic damage before recovery, with a slow return to baseline growth.
- W-Shaped: Economy experiences a quick collapse, a brief recovery, and then another decline, also known as a double-dip recession.
- L-Shaped: Economy rebounds slightly from a sharp dip but remains stagnant for years without returning to pre-crisis levels.