Is India looking at a V or W-shaped economic recovery in FY22?

The economic situation may have been different 10 years ago but then finance minister Pranab Mukherjee’s remarks at the US-India CEO Forum in June 2010 are worth recalling with reference to the current economic uncertainty.

He had said: “Economists used to tell us last year that the global economy will make a V-shaped recovery ... Recently, with the risk of new crises, experts are saying that it may be a W-shaped recovery. Frankly, I’m beginning to feel that for every (letter) in the English dictionary, there is a theory of economic recovery. What so many competing theories of recovery mean is that we really do not know the answer.”

A V-shaped recovery means there’s a sharp upturn after a quick decline, and a U-shaped one implies there could be months, even years, between decline and a pickup. 

W-shaped recovery, which is also called a “double dip”, means the economy picks up only to fall again and then starts rising, while an L-shaped recovery is characterised by a slow rate of recovery, with persistent unemployment and stagnant economic growth. And finally a K-shaped recovery is a situation where there’s a sharp divergence between different strata of society.

Coming to this financial year, the shape the economic recovery is taking depends on the context we are looking at. While the finance ministry says the recovery is V-shaped, most economists don’t think so.

If one looks at year-on-year growth, the recovery is V-shaped after the first quarter because of 20 per cent economic expansion. 

However, a low base of 24 per cent contraction in gross domestic product (GDP) during the first quarter of the previous financial year has caused this upward jerk. The growth did not capture the huge disruption caused by the second Covid wave as GDP during April-June FY22 was still 9.2 per cent lower than Q1 of 2019-20, the pre-Covid period. Besides, it was 16.9 per cent less sequentially than in Q4 of the previous financial year.

If one looks at quarter-on-quarter growth, the recovery seems to be W-shapes if the coming quarters see growth. However, when seen quarter-on-quarter, GDP generally contracts in Q1 because the size of the economy is higher in Q4.

When growth is seen in the context of seasonally adjusted quarter-on-quarter, it seems to be W-shaped if it comes in the next quarters. This is the most appropriate measure in the current times.

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