Former RBI Governor Raghuram Rajan has said that the government needed to do more to prevent a K-shaped recovery of the economy hit by the coronavirus pandemic.

K-Shaped Recovery

• A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes.
• This is in contrast to an even, uniform recovery across sectors, industries, or groups of people.
• A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession.
• This type of recovery is called K-shaped because the path of different parts of the economy when charted together may diverge, resembling the two arms of the Roman letter “K.”

Try these PYQ:

 

Q.Economic growth in country X will necessarily have to occur if-

 

(a) There is technical progress in the world economy

(b) There is population growth in X

(c) There is capital formation in X

(d) The volume of trade grows in the world economy

Implications of a K-Shaped Recovery

• 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.
• To the extent that Covid has triggered an effective income transfer from the poor to the rich, this will be demand-impeding because the poor tend to spend-instead of saving.
• 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.

Also read:

Shapes of Economic Recovery

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