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What are the head and tailwinds in the economy?


For India, the year 2021 that went by has been about rebuilding from the ravages of 2020 amid the COVID-19 storm which had pushed the already slowing economy into contraction mode.

The pandemic-related lockdowns sent the stalling economy into free fall, causing output to shrink by 24.4% and 7.4% in the first two quarters of 2020-21, respectively.

The country’s Gross Domestic Product (GDP) growth had dipped to a mere 3% in the fourth quarter of 2019-2020. The resultant destruction meant that job and income losses coincided with the unfolding health crisis.


GS-III: Indian Economy (Economic Growth and Development, Planning usage and Mobilisation of resources, Inclusive growth and issues therein)

Dimensions of the Article:

  1. Objectives of growth in India
  2. Understanding the Economic Outlook of India
  3. Indian Economy After Pandemic
  4. Sectors during Pandemic
  5. Back to basics: Economic Recovery
  6. What is a K-shaped recovery?
  7. About V-Shaped Recovery

Objectives of growth in India

  • Besides having high growth rate, it is also necessary to ensure that growth is inclusive, sustained, clean and formalized.
  • The investment rate should be raised from 29 per cent to 36 per cent of GDP which has been achieved in the past, by 2022-23.
  • Exports of goods and services combined should be increased from USD 478 billion in 2017-18 to USD 800 billion by 2022-23.
  • Moving from capital intensive sectors to labour intensive sectors to provide employments to young generation.
  • Making India as a five trillion-dollar economy by 2024.

Understanding the Economic Outlook of India

  • What makes economic recovery challenging is that this decline followed three years of sharp decline in GDP even before the novel coronavirus pandemic hit the country.
  • Economic growth had already decelerated to 4% in 2019-20, less than half from the high of 8.3% in 2016-17.
  • Since then, the slowdown in the economy has not only made things worse as far as economic recovery is concerned but also come at a huge cost for a majority of households which have lost jobs and incomes.

Indian Economy After Pandemic

  • An ambitious target was set for disinvestment from public sector enterprises backed by a new policy to retain a ‘bare minimum’ presence of state-owned firms even in strategic sectors.
  • The government explained that higher capital spending would trigger multiplier effects by nudging up demand in several sectors and spur job creation and consumption.
  • A K-shaped recovery is unfolding thanks to a divergence between those who needed to protect their lives and livelihoods.
  • While manufacturing and construction recovered, the economy’s overall output remained far below even the low pre-pandemic levels.
  • The recovery remains uneven and fragmented with economists also unconvinced about its sustainability.
  • Demand and investments were yet to see a meaningful and durable pick-up and any improvements were expected to be limited.
  • Gradual domestic economy had been grappling with low demand and a subdued investment climate.

Sectors during Pandemic

  • Agriculture is the only sector to record positive growth throughout the pandemic.
  • Sectors like manufacturing, mining, electricity, recovered above pre-COVID levels by September.
  • Employment-intensive sectors like construction, the contact-intensive trade and hotels industry, as well as financial services and real estate, continue to languish below their pre-pandemic levels.
  • There are some other interesting aspects of this year’s economic trajectory.
  • Wholesale price inflation has also hit an all-time high in the current series of the index, making input costs the number one worry for businesses.

Back to basics: Economic Recovery

  • Economic Recovery is the business cycle stage following a recession that is characterized by a sustained period of improving business activity.
  • Normally, during an economic recovery, GDP grows, incomes rise, and unemployment falls and as the economy rebounds.
  • Economic recovery can take many forms, which is depicted using alphabetic notations. For example, a Z-shaped recovery, V-shaped recovery, U-shaped recovery, elongated U-shaped recovery, W-shaped recovery, L-shaped recovery and K-shaped recovery.

What is a K-shaped recovery?

  • A K-shaped recovery happens when different sections of an economy recover at starkly different rates.
  • 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.”

About V-Shaped Recovery

  • V-shaped recovery is a type of economic recession and recovery that resembles a “V” shape in charting.
  • Specifically, a V-shaped recovery represents the shape of a chart of economic measures economists create when examining recessions and recoveries.
  • A V-shaped recovery involves a sharp rise back to a previous peak after a sharp decline in these metrics.
  • It is the next-best scenario after Z-shaped recovery in which the economy quickly recoups lost ground and gets back to the normal growth trend-line.
  • In this, incomes and jobs are not permanently lost, and the economic growth recovers sharply and returns to the path it was following before the disruption.

-Source: The Hindu

December 2023