Why India is witnessing a K-Shaped recovery? – UPSC GS3

  • India is witnessing a K-Shaped recovery instead of a V-Shaped recovery.
  • A V-shaped recovery is characterized by quick and effective recovery in measures of economic performance after an acute decline in the economy.
  • A K-shaped recovery is characterised by quick recovery in few sectors and stagnation or decay in other sectors.
Indications of a K-Shaped recovery in India:
Decline in two-wheeler sales: The sales of two-wheelers are the second-lowest it has been in seven years. Two-wheelers represent the economic situation of the lower and middle-class groups and India’s small businesses.
Reasons behind India’s K-Shaped recovery:
  • Regressive taxation policy: Government taxation policies continue to be regressive, with increased indirect taxes and lower direct taxes placing greater tax burden on the poor. While inflation increased, the incomes of the middle and lower-middle-class have remained constant.
  • Lower Budget allocation accounts for MGNREGA tends to increase the pressure on unemployment figures: MGNREGA acts as an alternative employment source for the informal sector at the time of distressed economy. However, the Government of India had cut its budget allocation towards MGNREGA by 34% for 2021-2022 when there is a greater demand now for MGNREGA jobs. Further, the lower Budget allocation accounts for the inability to compensate workers in time and fairly.
  • The recovery in the stock market and other such financial assets over the past year benefitted only a few sections of the population: Less than 5% of India invest in equities, which means that less than 5% of India directly benefited from said recovery. The lower middle class, which does not invest in such assets, has no protection against inflation.
  • Disproportional benefit of the asset price inflation favoured the upper-middle-class and this further explains the inherent K-shape of the recovery.
Way Forward:
The Government should address this phenomenon and works towards aiding the middle and lower-middle class.
  • Social welfare schemes must be given greater importance to assist households to get through this period. International examples from The U.S. and European economies can be a case point.
  • Government should try to increase progressive (direct) taxes and reduce regressive (indirect) taxes to ease the financial pressure on lower-income households.
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