In the current pandemic situation, ‘Economic Scenario and Economic Recovery’ has been one of the most talked about topic in the media. Though COVID-19 is a virus outbreak and not a financial crisis per se, the lockdown and the lack of business activity have been posing an immense challenge to almost all the COVID affected economies. So, how has been India’s economic recovery so far as compared to other nations? Before we discuss this in detail, we must first understand about the concept of ‘Economic Cycle’.
Whenever we are studying about Economics, Finance or Business Management in general, we always come across this topic as MBA Graduates. Economic cycle can be considered as the one of the most critical concepts in the ‘Macroeconomics’ area. A very good understanding of this foundational concept should be a must-have for every Management graduate from any specialization.
‘Economic Cycle’ sometimes also referred to as a ‘Trade Cycle’ shows the upward or downward movement in the economic activity of a particular country or a group of countries. It also reflects fluctuations in the Gross Domestic Product (GDP) and GDP growth rate. A typical business cycle theory, which has seen contributions from a lot of great economists, is supposed to have four phases: Peak, Contraction, Trough & Expansion.
Due to COVID-19 outbreak, there has been an extraordinary sudden fall in the economic activity breaking the usual cycle like pattern. The world economy was already in contraction before the pandemic and ceasing of business activity due to lockdowns, further sent the world economy onto a downhill path. Most of the affected countries declared negative GDP growth rates and predicted that it won’t be any easy path to recovery.
IMF recently predicted that the world economy will fall by 4.4% in the ongoing year and RBI published that the Indian economy will contract by9.5% for FY21. Some economies like China have recovered well from this crisis while some like USA, India & Brazil are battling hard against it. Though India’s economic recovery hasn’t been all smooth, India has definitely got the situation under control. The economic panic was avoided and a steadiness was brought in quickly by the national authorities imposing standard measures. Especially, Indian stock market has recovered well, probably representing the optimistic sentiments of the investors in general. September 2020 numbers have been a lot more promising as compared to the earlier months.
The recovery from a pandemic can be a bit tricky for the authorities to handle and it can also have different patterns. Let’s have a look at some of the common patterns of economic recovery seen historically.
China has shown a ‘V-Shaped’ recovery by posting a positive GDP growth of around 3.2% in Q2. Curiously, India similar to USA, has recovered a bit differently from the above-mentioned shapes. Some of the sectors in India have improved a lot while the other are lagging behind. This type of recovery is known as ‘K-Shaped’ recovery.
A ‘K-Shaped’ recovery is something which is not perfectly ideal as it increase inequality in the economy, however in this case, we can say ‘something better than nothing’. Further steps obviously need to focus on bringing up the sectors going down while not adversely affecting the sectors showing improvement. How much success the national authorities would have in doing so, depends on a lot of factors and remains to be seen but we can fairly say that the economic and financial minds in the country are definitely capable of handling it. We can say that, Handling Economies is like balancing on a rope, you can’t rush recklessly albeit you have to keep moving ahead.
Siddhesh Soman
Assistant Professor,
DR V N BRIMS, Thane
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