SBI Report Challenges K-Shaped Recovery Claims

GS paper III

News Excerpt: The report of State Bank of India (SBI) says that ongoing debate on India's K-shaped recovery post-pandemic seems flawed and incomplete.

What is a K-Shaped Recovery?

  • K-shaped recovery signifies a distinctive divergence in the economic rebound of various sectors post the pandemic.
  • While overall economic growth numbers may appear positive, the K-shaped pattern suggests that different segments of the economy recover disparately.
  • This divergence implies that certain sectors or groups may experience growth and prosperity, while others face challenges and stagnation.
  •  Essentially, it underscores the underlying inequality within the economic recovery process, revealing disparities in the fortunes of different economic segments.

How does the SBI report challenge the K-shaped recovery narrative?

  • The SBI report challenges the K-shaped recovery narrative by emphasizing patterns in income, savings, consumption, and expenditure.
  • The report added its research on ITR (income tax return) data of taxable income of individuals using the Gini coefficient estimate showed that individual income inequality has significantly declined from 0.472 to 0.402 during FY14-FY22. 
  • The decline in income inequality is because of a Great Migration at the bottom of the pyramid; 36.3% of individual ITR filers belonging to lowest income in FY14 have left the lowest income group and shifted upwards resulting in 21.1% more income for such individuals during FY14-FY21.
  • It cites policy measures aimed at empowering the masses, such as Ujjwala, Ayushman Bharat, Awas Yojana, and maternal/neo-natal welfare, as evidence of a more inclusive recovery.
  • The report suggests that traditional proxies like low two-wheeler sales or fragmented land holdings are outdated and do not accurately reflect India's economic well-being.
  • It highlights the muted post-pandemic sales of two-wheelers, attributing it to households reallocating savings toward physical assets like real estate and a shift to used/entry-level cars.

Gini coefficient

  • The Gini coefficient is a measure of how different groups of households receive differing shares of total household income.
    • For example, the bottom 5% of households might only have a 1% share of total household income. The bottom 10% of households might have a 3% share; the bottom 20% might have an 8% share, and so on.
  • The Gini coefficient is a measure of the overall extent to which these groupings of households, from the bottom of the income distribution upwards, receive less than an equal share of income.
  •  The Gini coefficient is the area between the Lorenz curve of the income distribution and the diagonal line of complete equality, expressed as a proportion of the triangular area between the curves of complete equality and inequality.
    • A Lorenz curve is a graphical representation of income inequality or wealth inequality. The graph plots percentiles of the population on the horizontal axis according to income or wealth and plots cumulative income or wealth on the vertical axis.

Critics' Contestation:

  • Critics contest the SBI report, pointing to fundamental flaws in its arguments. They question the validity of dismissing indicators like low two-wheeler sales.
  • They also questioned that , if the government has been forced to extend the scheme of subsidised food grain to 800 million Indians, why cant it denote deep economic distress in the larger population.
  • Skepticism is raised regarding the reliance on income tax data, considering the nominal nature of the data and its susceptibility to overall inflation.
  • Critics also challenge the report's choice of indicators, questioning why tractor sales are considered a better representative of the rural economy than two-wheeler sales.

Conclusion:

While the SBI report sparks a crucial debate on economic recovery, it underscores the need for a comprehensive and inclusive assessment. This discourse fosters a better understanding of India's evolving economic landscape.

 

Supplementary information

Other types of economic recovery

  • V shaped recovery: It is the best-case scenario, where the economy bounces back immediately after a sharp decline to go back to its pre-recession level in less than a year. The rebound can be bolstered by appropriate fiscal and monetary policies. 
  • U-shaped recovery: It is described as the ‘Nike Swoosh’ recovery, the economy experiences stagnation for a significant period of time after declining. It then rises gradually to its previous peak. This means the recession lasts longer, causing job losses and erosion of savings. 
  • L-shaped recovery: It represents the worst-case scenario. Here, the economy fails to regain its peak GDP even after several years. This has the longest recession period among all shapes. The downturn and the slow revival sometimes lasts indefinitely.
  • W-shaped recovery: Also called the “double-dip recession”, a W-shaped recovery sees an economy staging a brief comeback only to fall a second time. This scenario breaks consumer confidence and enters the full recovery period that can take up to 2 years. The economy will witness two recessionary periods.

Main PYQ

Q. Do you agree that the Indian economy has recently experienced V-shaped recovery? Give reasons in support of your answer. (UPSC 2021)

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