What is K-Shaped Recovery?

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What is K-Shaped Recovery? Blog Image

Overview:

Finance Minister recently rejected the theory that India's ongoing recovery is 'K-shaped'.

About K-Shaped Recovery:

  • A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes.
  • It 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 paths of different parts of the economy,when charted together, may diverge, resembling the two arms of the Roman letter "K."
  • The portion of the economy that recovers quickly is represented by the upper part of the K, while the lower part represents those groups that recover more slowly.
  • Reasons:

o K-shaped recoveries are generally caused by disparities that existed before the recession or by a recession that impacts populations and groups differently.

o It is possible due to the creative destruction of old industries due to the development of new industries and technologies during the recession.

o Government strategies like monetary and fiscal policies used to combat the recession can lead to a K-shaped recovery. Due to the nature of the economic policies, certain industries will benefit more than others

o Due to the nature of the recession, it can exert a unique impact on different parts of the economy, especially when a recession is coupled with a negative real economic shock that results in a lasting negative impact on certain parts of the economy.

· Example: During the COVID-19 pandemic, North America saw a K-shaped recovery where the richer individuals and industries recovered faster compared to the poor.


Q1; What is an economic recession?

Recession is a slowdown or a massive contraction in economic activities. Such a slowdown in economic activities may last for some quarters thereby completely hampering the growth of an economy. In such a situation, economic indicators such as GDP, corporate profits, employment, etc., fall.


Source:FM Sitharaman rejects K-shaped recovery theory for India, asks doubters to explain