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Both in India and around the world, the chances of a K-shaped recovery from COVID are improving.

When different parts of an economy recover at drastically different speeds, this is known as a K-shaped recovery.

Households at the top of the pyramid are likely to have had their incomes preserved and savings rates forced up during the lockdown, putting more “fuel in the tank” for future consumption.
Meanwhile, the poorest households are likely to have experienced long-term job and income losses.

For the past two quarters, upper-income households have benefited from increased savings.
Households at the bottom have lost permanent income due to job losses and wage cuts; if the labour market does not heal faster, this will be a continuing drag on demand.
COVID will be demand-impeding to the extent that it has triggered an effective income transfer from the poor to the rich, because the poor have a greater marginal propensity to consume (i.e. they spend (rather than save) a considerably higher proportion of their income.

COVID-19 could have an impact on trend growth in developing economies by lowering productivity and increasing political economy limitations if it limits competition or raises income and opportunity inequality.

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