K-SHAPED RECOVERY 

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.

Have we ever had a K-shaped recession?

• While V-shaped, U-shaped, and W-shaped recoveries have been around for decades, the concept of a K-shaped recovery first emerged in 2020 during the COVID-19 pandemic.

Divergence in K-shaped recovery

• The split course of the K-shaped recovery suggests systemic inequalities in the economy and society.
• It stems from pre-existing social and economic divides that are then exacerbated by a recession or other economic catastrophe. The economy is essentially split in two.
• The divisions can occur along social class, racial, geographic, generational, or industry lines - or a combination thereof.

Impact

• Households at the top of the pyramid are likely to have seen their in- comes largely protected, and savings rates forced up during the lockdown, increasing ‘fuel in the tank’ to drive future consumption.
• Meanwhile, households at the bottom are likely to have witnessed permanent hits to jobs and incomes,
• What's particularly concerning about a K-shaped recovery is the way it splinters the economy, continually widening the gap between those who are doing well and those who are not.
• In the end, a K-shaped recovery makes any existing problems of economic inequality much worse.

Macro implications of K-shaped recovery in India

• With the top 10 per cent of India’s households responsible for 25-30 per cent of total consumption, one could argue consumption would get a boost as this pent-up demand expresses itself amid Pandemic.
• Upper-income households have benefitted from higher savings.
• Households at the bottom have experienced a permanent loss of income in the forms of jobs and wage cuts. This will be a recurring drag on demand, if the labour market does not heal faster.
• COVID has triggered an effective income transfer from the poor to the rich, this will be demand-impeding because the poor have a higher marginal propensity to consume (i.e. they tend to spend (instead of saving) a much higher proportion of their income.
• If COVID-19 reduces competition or increases the inequality of incomes and opportunities, it could impinge on trend growth in developing economies by hurting productivity and tightening political economy constraints.

Financial Takeaway

• A K-shaped recovery occurs after a recession when certain parts of the economy resumes growth while others lag behind indefinitely, and it's a type of recovery that rose to prominence during the COVID-19 pandemic.
• The K-shaped recovery didn't cause these inequalities, but it does expose them.
• And these trends, and the resulting disparity, are likely to become even more concentrated if it continues.

K-shaped recovery vs. other recovery types

V-shaped recovery

A sharp decline followed by a rapid recovery, with very little time spent at the trough, or low point, of the recession.

U-shaped recovery

A steep decline followed by a period of time in which the economy sits at the low point of the recession before finally recovering.

W-shaped recovery

Also known as a double-dip recession, this is a scenario when the economy experiences a steep decline, followed by a small and temporary recovery and then a second decline.

L-shaped recovery

A severe recession in which the economy declines and doesn't recover for years, if ever.

To know about other Economic Curves in detail,

Visit: https://www.iasgyan.in/blogs/important-economic-curves-for-upsc