Will GDP Growth Result In A V, W Or K- Shaped Recovery?

Is it a V? Is it a K? L? U? W? The pattern of india’s economic recovery has got india’s top economists seized in a bizarre game of alphabet economics. Meanwhile, there’s another shape that’s threatening to put the recovery into an ‘o’ loop. It’s called omicron, and it could be a nasty customer

- Dilasha Seth And Rajat Mishra

-0.5% Year-on-year gross bank credit growth to micro and small enterprises remained negative in Oct 2021

60% Capacity utilisation at the aggregate level for manufacturing in Q1 of FY22, down from 69.4% in the previous quarter

40% Labour force participation rate compared to 43 per cent before the pandemic

THERE’S A GAME afoot amongst economists and all and sundry who are engaged in the matter of forecasting economic growth. It’s called Alphabet Economics. And it’s about predicting the shape of the GDP growth rate curve, after the battering received at the hands of the Covid-19 pandemic. Will it be a V? K? L? U? Or a W? India’s former chief economic advisor K.V. Subramanian is betting big on a V-shaped revival, while others including International Monetary Fund (IMF) Chief Economist Gita Gopinath are calling it a K-shaped one, indicating widening inequality or uneven recovery. Even the data indicates two alphabets—V and W (see charts). Plotting sequential quarterly GDP growth shows a W-shaped recovery (with two sharp dips), but plotting annualised GDP growth appears V-shaped, or as N.R. Bhanumurthy, Vice Chancellor of BASE University puts it—a smoking pipe-shaped recovery.

Despite the downside risks from the big O—the Omicron variant of the coronavirus—most economists believe that the worst may actually be behind us. And that Finance Minister Nirmala Sitharaman’s upcoming Union Budget 2022-23 could be an opportunity for the government to take the economy into acceleration mode with a targeted approach for key sectors to boost consumption, which remains weak.