Gist of V Shaped Recovery & Sensex's Rise | Gist of Rajya Sabha TV / RSTV (now Sansad TV) - UPSC PDF Download

The Big Picture: V Shaped Recovery & Sensex's Rise

Context

Background

• This observation came in the State of the Economy report released by the Reserve Bank of India (RBI). 
• This comes at a time when the top bank started draining out the surplus liquidity in the money markets, to stave off an economic crisis as a result of COVID-19 pandemic. 

Summary of The Debate

Key Points of The State of The Economy Report

• Recent shifts in the macroeconomic landscape have brightened the outlook, with GDP in striking distance of attaining positive territory and inflation easing closer to the target. If these movements sustain, policy space could open up to further support the recovery.
• The consumer confidence is expected to increase from January 2021, peak in July 2021 and continues till September.
• Going forward, two positive features are going to shape up the fiscal landscape in H2. First, the general government gross fiscal deficit to GDP ratio is likely to moderate to 10.4 percent. This development will be revenue-driven as the war effort of H2 bears fruit and receipts return to positive territory. 
  • Second, the quality of the fiscal deficit is also likely to be better in H2.
• The central bank also sees an upturn in non-oil exports due to a rise in shipments of drugs and pharmaceuticals, iron ore and Agri products.
• The bank predicted that the production linked incentive (PLI) scheme introduced for bulk drugs and medical devices is performing well and is expected to support pharmaceutical and medical exports going forward.

Rising Stock Market

• There are flowing sentiments and fundamentals in the market. 
• When we talk about the stock markets, we are talking mostly about the organised, formal corporate sectors. Whenever this kind of a disruption happens, the organised, formal corporates actually gain market share.
• After a 30 percent fall in the early days of the pandemic, the Indian markets have seen a strong rebound and risen over 70 percent since April.
• While critics attribute the rally to a global liquidity glut, investors say they are taking a longer term bet on the economy's prospects. There are also some who are concerned about the excessive concentration in a few stocks.
• In terms of stock selection, India continues to benefit from two phenomena - the big getting bigger (and those 'big' stocks largely constitute the investable market) and availability of quality stocks in relative abundance compared with its Asian peers.
• Economic recovery in India seems well entrenched and some high frequency indicators like auto sales, steel and cement consumption and railway freight are at or higher than pre-COVID levels.
• Recent policy initiatives like changes in agriculture marketing laws, labour laws and production-linked incentive (PLI) scheme for 10 sectors are aimed at boosting agricultural incomes and incentivising labour-intensive and export-focused investments, and their impact will be felt over the longer term.

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.
• A V-shaped recovery is characterized by a quick and sustained recovery in measures of economic performance after a sharp economic decline.
• Because of the speed of economic adjustment and recovery in macroeconomic performance, a V-shaped recovery is a best case scenario given the recession.

Factors for V shaped Recovery: 

• Agriculture has done very well so far, and, this year sees 6 percent more production than previous year. 
• Purchasing Manager Index for manufacturing and services has witnessed an upward trend. 
• Demand for Bank Credit has gone increased. 
• Consumer sentiments have shown uptick. 
• The figures of MNREGA are on good trend which gave money to poor hands.
• Unemployment figures from 9 percent have come down to 7 percent overall, 7.2 percent in rural and 7.7 percent in urban areas. 

Conclusion