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June 23, 2021Posted by : Career Topper Content TeamNo Comments

Recovery Shapes

U-shape, V-shape, W-shape, etc., are some of the graphical predictions that economists deploy to predict economic performance over time. By analysing the shape of a graph, they can describe the recovery process in the economy, after a crisis like the COVID-19 pandemic.

U- Shape Recovery

A U-shaped recovery is a graphical representation of recovery in an economy which resembles a U shape, plotted on certain economic measures such as GDP. U-shape recessions occur when an economy shrinks and the damage of that contraction lasts for a long period of time before regaining growth and moving higher again towards the predicted trajectory.

V-shaped recession

In V-shaped recession, an economy experiences a steep decline and rapid recovery that resembles a V shape. A V-shaped recovery is often considered as an optimistic recovery process considering recession, as a downturn, does not last for long and does not cause any severe or lasting damage to the economy.

Double-Dip Recession

A double-dip recession occurs when an economy experiences a crisis and enters into a recovery phase, which doesn't last for long and the economy again slides back to recession before another sharp recovery from that recession. This type of recovery is also known as a “W-shaped Recovery”.

How the Recovery of the Indian Economy is likely to be after COVID-19

The second wave of COVID-19 has seen to be contracting the pace of recovery of the economy which showed positive signs of growth from 3rd quarter of F.Y. 2020-2021. As the second wave of COVID-19 has hit the country forcibly and forced many states to impose lockdowns, a strong recovery in the economy has been derailed. This second wave has prompted us to reconsider our forecasted GDP of 11% this fiscal year.

The Indian economy, at the end of F.Y. 2019-2020, was sized at INR 145 trillion (GDP at constant prices). It is estimated that due to the first wave of COVID-19, the economy will shrink by 8%. Forecasters estimated the economy to grow at 11%, however, in light of the second wave of COVID-19, they were forced to re-estimate their forecast to 8- 10% which would leave the economy worse off than it was in March 2020.

Figure 1: Impact of COVID-19 on GDP Growth Rate

As Indians struggle with lower income and decreased job security, data from CMIE provides that the second wave will cause moderate economic distress as compared to last year:

Job losses amongst men in rural areas amounted to 1.6 million between March - April 2021 v/s 100 million between March – April 2020. Job losses in women in rural areas amounted to 15 million between March – April 2020 and an additional 5.6 million between March - April 2021.

Farmers have been impacted most in April 2021. About 6 million fewer farmers were employed in March 2021 and 3 million fewer farmers were employed in April 2020.

In April 2020, the unemployment rate was 23.52%, which recovered to 6.5% by November 2020, right before the second wave, and has scaled back up to 14.73% with the second wave in May 2021.

Other factors that can impact India's economic growth are slow demand recovery and the pessimistic attitude of consumers before making expenditures. After the first wave, a sharp rebound in demand was witnessed by business across the country; however, the demand recovery is likely to be slower in the current market-scenario, primarily due to higher spending on health problems. Consumer sentiment data also suggests that households will likely reduce their spending as compared to last year due to higher expenditures on healthcare and fuel and a reduction in savings.

Figure 2: Effect on Household Income

Indian Economy will likely witness K-shape Recovery

For a country like India, inequality in income poses a big hurdle for revival, as upper segments of the population have seen their wealth rise but things are not so optimistic for those at the middle and bottom of the pyramid.

The recovery of the Indian economy is likely to be in K shape, as reported by Forbes. This is primarily due to the rising income-inequalities which ultimately impact the consumption and future growth prospects. These hurdles in the path of recovery could drag the recovery to a K-shape, representing an uneven rebound growth which is more likely to be seen as compared to a V-shape recovery, which suggests rapid recovery and return to growth.