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Last Updated : Oct 09, 2020 07:38 PM IST | Source: Moneycontrol.com

V, U, L, W or K? This is what RBI governor thinks the nature of India's economic recovery could look like

According to Das, sectors that will register the quickest recovery include Agriculture and allied activities, fast moving consumer goods, two wheelers due and passenger vehicles and tractors, drugs and pharmaceuticals, and electricity generation, especially renewables.

Reserve Bank of India (RBI) Governor Shaktikanta Das on October 9 said he expects the economic recovery in the aftermath of COVID-19 to predominantly be a three-speed recovery, with individual sectors showing varying paces, depending on sector-specific realities.

"There is currently an animated debate about the shape of the recovery. Will it be V, U, L, or W? More recently, there has also been talk of a K-shaped recovery. In my view, it is likely to predominantly be a three-speed recovery, with individual sectors showing varying paces, depending on sector-specific realities," he said.

In a V-shaped recovery, after the economy suffers a sharp decline, it then recovers with similar intensity. Such recoveries are generally driven by a significant shift in economic activity caused by rapid readjustment of consumer demand and business investment spending.

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In comparison, in a U-shaped recovery, the economy remains depressed typically over a period of 12 to 24 months before bouncing back.

In an L-shaped recovery, the economy sees persistent unemployment and stagnant economic growth, while a W-shaped recovery, resembling a "W", involves a sharp decline followed by a sharp rise back upward, followed again by a sharp decline and ending with another sharp rise.

Meanwhile, the term K-shaped recovery only gained traction in 2020 in the aftermath of the COVID-led sharp recession in the US. It is used to describe the uneven economic recovery across different sectors, industries, and groups of people in the economy.

According to Das, sectors that will register the quickest recovery include Agriculture and allied activities, fast moving consumer goods, two wheelers due and passenger vehicles and tractors, drugs and pharmaceuticals, and electricity generation, especially renewables.

He said, "The second category of sectors to ‘strike form’ would comprise sectors where activity is normalising gradually."

The third category of sectors, according to Das, would include the ones which face the ‘slog overs’, but they can rescue the innings. These are sectors that are most severely affected by social distancing and are contact-intensive.

"In several of these areas, reforms such as in agricultural marketing and value chains encompassing cold storage, transport and processing, changes in labour laws, and creation of capacity for production and distribution of vaccines have already opened up new vistas for fresh investment to step in," he added.
First Published on Oct 9, 2020 11:25 am
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