In my column last December I was foolhardy enough to venture some predictions about economic and political/security developments in the world and India in 2011, the year about to end (“A speculative peep”, December 23, 2010). All told, I made 32 predictions. Looking over that list today, I find that (numerically, at least) those forecasts haven’t fared too badly: 27 were correct, three were half right and two were plain wrong. Of course, the author’s assessment has to be taken with a pinch of salt; a more objective reviewer might modify these numbers a bit.
The two that I got wrong relate to worse-than-expected outcomes for the world economy and the US economy, though the latter seems to be showing some bounce in the second half of the year. On both Europe and Japan I had been suitably bearish. Regarding the euro I had written: “Despite enormous strains, the euro is likely to survive but it’s not a sure bet.” Today that bet looks even less secure. On India I had been uncharacteristically bullish, predicting eight per cent growth (when the government was touting nine per cent) and the actual result may be half a percentage point below that for the calendar year and even lower for the fiscal year. What is far more worrying is that the growth deceleration seems set to continue into the coming year and perhaps beyond. I had foreseen the slackening of inflation to a headline rate of around six per cent by next spring, which now looks too optimistic. And while I had anticipated our large external deficits, high oil prices and faltering capital inflows and warned against rising financial vulnerability, I certainly did not predict that the INR/USD rate would depreciate to 52.
Going back to the numbers, 27 out of 32 might look pretty good as a forecasting record. After all 84 per cent is a pretty decent set of marks, unless you are a hapless student seeking entrance in a Delhi University college. But honesty compels me to point out that these high, self-awarded marks are very misleading. They are limited to the domain of my predictions. The real forecasting failure is that the scope of my predictions a year ago missed some of the pivotal events and trends that emerged during 2011. Let me mention ten of these.
First, like virtually every other economic and political soothsayer, I had no inkling of the “Arab spring” that would sweep across North Africa and the Mid-East after a desperate Tunisian immolated himself. Who in December 2010 could imagine that President Mubarak would be driven from office in Egypt, Gaddafi would be killed after a bitter civil war in Libya, Assad would be fighting a brutal rearguard action against his Syrian brethren to cling to power and Tunisia would have become a fledgling democracy?
Second, like everyone else, I was shocked and awed by the gigantic tsunami that hammered north-east Japan in February and triggered the disaster at the Fukushima nuclear power station. Apart from the tsunami’s massive human and economic toll in the affected area, the Fukushima disaster had a far-reaching fallout on nuclear power programmes across the world.
Third, the daring American helicopter raid in Abbottabad (close to a major Pakistani base) not only killed Osama bin Laden but also brought the uneasy US-Pak alliance to a new low of mutual suspicion. (As the raid was going on, with grenades exploding, a late-night Abbottabad blogger ruefully commented, “…there goes the neighbourhood…”) The subsequent patching up of the shaky alliance has been ripped again by the recent Pakistani army casualties from Nato air strikes on a border post. AfPak remains a powder keg.
Fourth, I did not foresee the severity of the political deadlock over US fiscal policy, which saw the near shut-down of the government in August, the unprecedented rating downgrade and the more recent failure to conclude an agreement on fiscal consolidation by the Congressional “supercommittee”, with its potentially grave consequences for American social and military spending.
Fifth, although the gravity of the European crisis was not a surprise, the prolonged descent into a full-fledged existential challenge for the euro zone was not widely anticipated. As 2011 nears its end, Europe’s future still looks grimly uncertain.
Sixth, while China’s growing assertiveness in Asia and the world was presaged in my year-old forecasts, the recent, well-publicised counter-steps by America in the Indo-Pacific arena (including the fresh positioning of troops in Australia) have been something of a surprise. This well-orchestrated reassertion of American presence across the world’s most critical sea lanes has been generally welcomed by Asian countries.
Seventh, the loosening of the Myanmar government’s tight control over political, civil and economic life in that country had begun in late 2010. The post-election thaw in the political domain, ushered in by President Thein Sein, and the recent commitment by the iconic opposition leader, Aung San Suu Kyi, to contest by-elections, have been very pleasant surprises. There are big opportunities (and risks) for India to manage in this brave new world on our eastern border.
Eighth, back in India, the Hazare phenomenon came out of the blue, was magnified by TV and was mishandled by the government, which allowed itself and Parliament to be bullied in weird and not-so-wonderful ways by Team Anna. More of this particular drama may be in store.
Ninth, the continuation of India’s economic policy stasis in the face of declining performance was neither hoped for nor expected. A week back it looked as if the government had broken the shackles through its announcement of FDI liberalisation in multi-brand retail. Subsequent flip-flops under opportunistic pressure from the opposition, allies of Congress and doubters within have all but extinguished that hope. Back to square minus one.
Finally, I did not expect that our politics would become as dysfunctional as they now appear to be. Deeply antagonistic party politics seems to have trumped the functioning of democratic institutions, especially Parliament. Normal administration is also stymied by uncertainty, insecurity and suspicion. At the time when a fast-changing world is throwing up fresh economic and security challenges and opportunities, the Indian state seems least able to deal with them.
In last Saturday’s International Herald Tribune, Suu Kyi writes about the interplay of “passion” (in the sense of commitment) and “power”, and the need for both to be “mutually supportive partners” if a nation is to progress. As 2011 draws to a close, both ingredients seem to be dangerously scarce in India’s polity and governance.
The author is Honorary Professor at Icrier and former Chief Economic Adviser to the Government of India.
Views expressed are personal
