The Editorial Analysis: Pointers that India is witnessing a K-shaped recovery

Relevance

• GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Context

• After the Indian economy opened up after the coronavirus pandemic, experts were of the view that the economy would witness the V-shaped recovery.
• Today, however, the experts are of the view that the recovery is more K-shaped than V-shaped.

K-shaped and V-shaped difference

• A V-shaped recovery is characterised by quick and effective recovery in measures of economic performance after an acute decline in the economy.
• A K-shaped recovery, on the other hand, happens when different sections of an economy recover at starkly different rates.

K-shaped recovery

Signs from industry

• A report by CRISIL indicates that in the year 2021, two-wheeler sales are set to decline by 3%-6% year-over-year.
• It is significant because two-wheelers represent the economic situation of the lower and middle-class groups and India’s small businesses.
• The sales of two-wheelers are the second-lowest it has been in seven years.

Taxation

• Government is maintaining indirect taxes on fuel and consumer products while lowering corporate taxes.
• Moreover, Government had recently raised taxes on textile products from 5% to 12%.
• Increase in taxes, when the salaries have largely remained constant, has led to sustained loss in disposable income.

On jobs, NREGA

• Over 50 lakh people lost their jobs in October, according to a Centre for Monitoring Indian Economy (CMIE) report.
• Many of those who lost their jobs during this period are likely economically insecure and abstain from non-essential purchases.
• This, coupled with the high food and fuel prices, delivers a deadly blow pushing families to poverty.
• Moreover, in the year 2021-2022, the Government of India had cut its budget allocation towards MGNREGA by 34%.
• There is a greater demand now for MGNREGA jobs than in the pre-COVID-19 era.
• The lower Budget allocation accounts for the inability to compensate workers in time and fairly.
• A portion of the Budget this year is spent on paying the liabilities for the previous financial year.
• Those looking for MGNREGA work cannot afford to be unpaid for such long durations.

Stimulus and growth

• The U.S. and European economies have stimulated the economy bottom-up by providing unemployment cheques and social welfare schemes.
• Economist John Maynard Keynes said that there is a direct relation between money multiplier and the government stimulus and economic growth.
• It is more important to prioritise those who are more likely to spend (the middle and lower-middle-class) rather than those who have a greater propensity to save.
• The recovery in the stock market and other such financial assets over the past year has been phenomenal.
• However, less than 5% of India invest in equities, which means that less than 5% of India directly benefited from said recovery.
• Thus, recovery in stock market does not necessarily reflect the economy’s condition as observed previously.

Think Welfare Schemes

• Given the worrying situation of lower income households, it is crucial that the Government 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.
• Government should consider increasing progressive (direct) taxes and reducing regressive (indirect) taxes to ease the financial pressure on lower-income households.

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