V-Shaped economic recovery can be defined as “Economy that has suffered a sharp economic decline experiences a fast and strong rebound”. The GDP which had contracted to -7.5% (2020-21) is expected to rebound to 9.5% (2021-22) reviving hopes of V-shaped recovery. However, economists have highlighted that economy has not recovered completely.
Evidences in support of V-Shaped Economic Recovery (Eco Survey 2019-20)
- Lifting of lockdown and vaccination have eased restrictions leading to pent-up demand expenditure and economic revival.
- Stimulus Measures: Aatma Nirbhar Bharat (20 Lakh crores, 10% of GDP), Counter cyclical fiscal policy etc. have led to increase in Government’s expenditure and can crowd-in investment.
- Liquidity Measures: RBI’s unconventional tools such as TLRTOs, Operation Twist, G-SAP etc. can improve credit-GDP ratio.
- Improvement in high frequency indicators such as IIP, power consumption, e-way bill etc.
Evidences against V-Shaped economic Recovery
- Low Base effect: Higher GDP growth due to low-base effect.
- U-Shaped or W-Shaped economic recovery
- Short run economic revival due to lifting of lockdown. However, concerns still remain over continued growth momentum.
- Major drivers of Indian economy- Consumption expenditure and Investment still below pre-covid level due to emergence of new variants, loss of jobs and poor investor sentiments.
- Limited scope for Government and RBI to provide stimulus due to rising fiscal deficit and debt, higher inflation etc.
K-Shaped economic recovery:
- Uneven recovery of different sectors: IT and Services (Revival); Real estate, Travel, Hospitality (poor recovery)
- Disparities in Revival of formal and Informal sector.
- Growing Income inequalities (Oxfam International)
Undoubtedly, India has registered V-Shaped recovery in the short run. However, it may face difficulty in continuing with the same momentum in registering high GDP growth rate in the medium and long run. The Government should continue to focus on faster recovery through creation of infrastructure, jobs etc. to become $ 5 trillion economy.