Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

K-Shaped Recovery Debate: A Closer Look at the SBI Research

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From UPSC perspective, the following things are important :

Prelims level : K-Shaped Recovery

Mains level : Read the attached story

K-Shaped Recovery

Introduction

  • The Economic Research Department of the State Bank of India (SBI) recently released a study titled “Debunking K-shaped recovery,” addressing the ongoing debate about the post-pandemic recovery in India and its alleged K-shaped nature.
  • This debate has significant implications for the country’s widening inequality.

What is K-Shaped Recovery?

  • A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes.
  • This is in contrast to an even, uniform recovery across sectors, industries, or groups of people.
  • A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession.
  • This type of recovery is called K-shaped because the path of different parts of the economy when charted together may diverge, resembling the two arms of the Roman letter “K.”

SBI Challenging Conventional Wisdom

  • Controversial Message: The report’s key message suggests a potential “conspiracy” against India’s growth, raising eyebrows about the credibility and intent of the economic evaluation.
  • Message Summary: It questions the validity of the K-shaped recovery concept, calling it “flawed” and driven by certain vested interests who are uncomfortable with India’s ascendancy on the global stage.

Re-evaluating Economic Well-Being

  • Parameters under Scrutiny: The report challenges traditional parameters used to assess economic well-being.
  • New Considerations: It highlights patterns in income, savings, consumption, expenditure, and policy measures designed to empower the masses through technology-driven solutions, questioning the reliance on outdated indicators like 2-wheeler sales or land holdings.

Shaping a Narrative

  • Polarized Environment: In a time of heightened polarization and India’s emergence as a major economy, the report’s language, including phrases like “fanning interests” and “renaissance of the new global south,” appears to align with current political narratives.
  • Narrative Shift: The report introduces a new narrative, emphasizing the reduction of inequality in India.

Claims on Inequality

  • Inequality Reduction: The report asserts that income inequality has decreased, citing the Gini coefficient of taxable income, which fell from 0.472 to 0.402 between FY14 and FY22.
  • Limited Sample: However, the research relies on “taxable income” from a small fraction (around 5%) of the population, primarily those paying income tax, making it less representative of the informal workforce and the broader economy.
  • Food Orders as Proxy: The study also uses Zomato food orders, primarily from semi-urban areas, to challenge claims of economic distress.

Representativeness Concerns

  • Focus on Formal Sector: The SBI research primarily centers on the formal sector, which represents a privileged minority within the Indian economy.
  • Inequality Debate: This focus mirrors the crux of the inequality debate, where those excluded from economic growth continue to lag behind, while those already well-off experience significant growth.

A Different Perspective

  • Contrasting Reports: In 2022, another report, “The State of Inequality in India,” commissioned by the Economic Advisory Council to the Prime Minister, highlighted rising inequality in the country.
  • Unimaginable Disparities: It noted that an individual earning a monthly wage of Rs 25,000 was among the top 10% of earners, underscoring the stark income disparities.

Conclusion

  • While the SBI research provides a unique perspective on India’s economic recovery and inequality, its focus on a limited sample from the formal sector raises concerns about its representativeness.
  • The broader discourse on inequality remains critical, emphasizing the need for a more comprehensive understanding of the diverse economic landscape in India.

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