K-Shaped Recovery [UPSC Notes]

The recent slowdown in quarterly GDP growth from 6.3% in Q2 of FY 2022-23 to 4.4% in Q3 FY 2022-23 raised concerns about a K-shaped economic recovery among economists. In this context, the concept of K-shaped recovery becomes important for the IAS exam Indian economy segment.

K-Shaped Recovery

Source: Investopedia

• Recovery of an economy during a recession can be classified into different shapes namely U, V, W and K.
• The concept of K-shaped recovery came to light during the covid 19 pandemic.
• K-shaped recovery portends a diverging economic scenario where certain sectors of the economy will be thriving while other sectors will continue to decline or struggle to recover. 
• The thriving sector is represented in the upper part of K while the declining part of the economy is represented in the lower part of the K shape.
• Similar to the shape of the letter “K”, an economy will consist of different divisions based on wealth, geographic and industrial characteristics. In this context, K-shaped recovery can exacerbate inequalities in an economy due to differences in recovery between various sectors.

K-Shaped Recovery Causes

• The emergence of technology and new companies can disrupt an even recovery during a recession. Example: Tech-based industries thrived during the pandemic while the hospitality and tourism industry got affected.
• Sometimes government efforts to revive the economy through monetary and fiscal policy during a recession can also cause uneven recovery leading to a K-shaped recovery.
• If a recession is coupled with economic shocks it can affect different sectors of the economy differently.

Also read: Monetary Policy

Signs of K-shaped Recovery in the Indian Economy:

• Private consumption expenditure which is an important component in GDP calculation is slowing down due to a K-shaped recovery. 
• The Private Final Consumption Expenditure component of the GDP suggests slowing down. According to private consumption data which was at ₹23.3 lakh crore in the third quarter of FY22 reduced to ₹22.6 lakh crore in January-March 2022 and further to ₹22 lakh crore in April-June.
• Since K-shaped recovery furthers uneven consumption and expenditure due to unequal recovery in sectors, private consumption slowdown is attributed to K-shaped recovery catching up.
• Various data such as from the Centre for Monitoring Indian Economy suggest that while the listed companies in the formal sector are doing well overall in terms of sales, segments within the formal sector are struggling.
• Other data such as teledensity, sales of jewellery, two-wheelers and cars are also slowing down. FMCG sales data also reveal a rural-urban divide in spending.
• However, according to the government, assuming a K-shaped recovery in the Indian economy is not valid since both Urban and Rural spending are recovering though at different paces.

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