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LATEST NEWS UPDATES | Indian economy is heading for a K-shaped recovery and it won’t be a pretty sight -TN Ninan

Indian economy is heading for a K-shaped recovery and it won’t be a pretty sight -TN Ninan

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published Published on Sep 5, 2020   modified Modified on Sep 6, 2020

-ThePrint.in

K-shaped recovery means the growing gap between ‘winners and losers’. An example in India is the stock market being healthy while millions have lost their jobs.

Amidst the flood of commentary that followed the finding that the world’s fastest-growing large economy had become its fastest-shrinking one, an observation that stood out was that India’s growth potential had dropped from 6 per cent to 5 per cent. Now, it has been obvious for some time that India will emerge from the Covid-19 recession with a record fiscal deficit, record public debt (both in relation to GDP), a fresh lease of life for the “twin-balance sheet crisis” confronting banks and companies, complex monetary challenges, and consequently reduced growth potential — once reckoned at 7-plus per cent. But 5 per cent? Surely not!

Calculations of an economy’s growth potential can be simplistic journalism (investment rate divided by the ICOR, or incremental capital-output ratio) or complex maths with many assumptions. It is also intrinsic to a data-poor emerging economy that such estimates of growth potential comprise soft, not hard, numbers. Still, no one until now had said that India’s growth potential would be lower than the growth rates achieved in the 1980s and 1990s (between 5.5 per cent and 6 per cent). If so, those rosy BRICS scenarios would have to be radically re-cast. Per capita income in inflation-adjusted rupees in 2022-23 is likely to be no bigger than in 2019-20 — translating into three lost years. Consider what that means: Surplus capacity in all directions, and a collapse of new investment.

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ThePrint.in, 5 September, 2020, https://theprint.in/opinion/indian-economy-is-heading-for-a-k-shaped-recovery-and-it-wont-be-a-pretty-sight/496170/?fbclid=IwAR3qL4RFI5Vw0zzB07Q__bkVmL5CKLLYUCnjlOLMhoKgTyEgrlL2vFYto-A


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