Feeling good? It may be too early to celebrate

Brinda Jagirdar, Chief Economist, State Bank of India

A large part of every economist’s life revolves around making predictions and as we all know, forecasting is never easy, especially if it is about the future. Nevertheless, this is a professional hazard and there are so many numbers that as an economist I am always asked about, like inflation (now we have to make separate forecasts about WPI and CPI inflation), IIP, GDP, BoP.

What makes the task even more difficult is that data can often be perplexing. For instance, the IIP provisional data for January 2012 showed a growth of 6.8 per cent, but this was later revised to 1 per cent. Also, the old IIP series from December 2008 till June 2009 showed that while growth was slowing in the aftermath of the global financial crisis, everyone was happy that India had not been hurt by the crisis.

So was industry growing or shrinking?

Subsequently, the whole series got changed (with a new base, more items, change in weights) which showed that for every month from December 2008 till June 2009, industrial production was actually contracting not expanding.

Even in the case of WPI inflation, wide variations and swings between provisional and final data make forecasting hazardous and economists often go off the mark. At times, the difference in data on exports and imports put out by the Reserve Bank of India (RBI) and the government is large and leaves us wondering which way the trend is moving. With such wide variations and volatility, it becomes very difficult to make forecasts and even more difficult to suggest policy based on these numbers.

Now that the apex bank has started a mid-quarter review, besides its quarterly reviews of the monetary and credit policies, we economists are asked to provide prepolicy projections every six weeks and then comment on the measures post-policy. So pretty much through the year there is little that is on the back burner.

Of course, there is never a dull moment. If it is not data, then maybe there is some event risk. Like, when credit rating agencies threatened to downgrade the country, economists immediately swung into action and put forth data and arguments to dispel misconceptions and prove that, if anything, India deserved a higher rating than so many countries in Europe.

After a long gap, the last quarter saw a flurry of activities on the reforms front. This, of course, was a welcome change, but economists are a cautious lot and for most, it was too early to celebrate. After all, we had to see action on the ground first. Luckily, as we go into the New Year, there are some ‘green shoots’ which should keep us busy in the coming days.


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