Crystal ball blues: Golden Sparrow vs Black Swan

  • N Madhavan, Hindustan Times
  • Updated: Jan 01, 2015 15:32 IST

“It’s tough to make predictions, especially about the future.” – Yogi Berra

The Hindu nationalists who inspire the current government in India often speak of the time when the national economy was a “Sone Ki Chidiya” (Golden Sparrow). The bird symbolised the prosperity of the India that was a wonder in ancient times. Prime Minister Narendra Modi’s government has shown enough spunk and decisiveness in its first half-year in power in 2014 to try and bring back that glory.

But there is another bird the world knows now: the Black Swan.

The Black Swan Theory has become the modern world short-hand for the major unknown factor that strikes markets – and nearly anything for that matter – and causes profound consequences. Its proponent, Nissim Nicholas Taleb, is due to visit India in January, days before President Barack Obama arrives as Modi’s Republic Day guest in a vote of confidence for India’s economic revival.

All indications are that the India Story is ready to regain momentum and the GDP growth rate may head towards doubling itself from the dismal 4.7% in 2013/14 over the next few years. The government has cleared obstacles for land acquisition and spectrum auctions and taken new initiatives to boost financial inclusion and “smart cities.”

Yet, there are questions: Will there be a Black Swan that comes in the way of the elusive Golden Sparrow? Eccentric American baseball star Yogi Berra’s funny quote about predictions was in a way a humorous forerunner of the subsequent Black Swan theory.

Looking back at 2014, India had its worst monsoon in five years. But then, it also had oil prices plunging to five-year lows. For a petroleum-import dependent economy stuck with a huge subsidy burden, the former was a shocker for both inflation control and industrial demand, while the latter proved to be a glorious blessing that could help ease interest rates.

As it happens, major surprises may not necessarily be negative. But there is a lot of ground to cross without having to look for surprises. Indian banks have a huge backlog of risky loans – more than R 240,000 crore. This could take long to clear.

Modi’s travels to Japan and China have made India’s economy equally linked with the US and Asia in spirit. Japan’s push to revive its sagging economy may find a true ally in India –especially with the big push to manufacturing in which India may become a global hub. But there are catches. Infrastructure takes time to build, new power projects need to get their pricing right, and inflation needs to be managed so that neither consumers nor producers get caught in a pincer.

There is also the question of sustainability. The world has been much foot-dragging on climate change, but the time for hard decisions on carbon emission cuts are nearing. The Paris conference of the UN towards the end of 2015 is something India cannot ignore — not just for the sake of its own ecology but also for signals that may necessitate calibrations in its push to become a smokestack superpower.

There’s more. Robotics and 3D printing are taking off in the world of manufacturing. How good are India’s semi-skilled or barely skilled workers in tapping opportunities in a world in which technology is hyper-disruptive?

And so, we are back to the seemingly humorous, but actually profound realization: predictions about predictions are not easy in a world of complex variables and dynamic changes.

India may also have to cope with the economic side-effects of social tensions or the political divides they bring. Whether it is FDI in insurance or on compensation for land acquired to build industry, the absence of reasonable political consensus is fraught with risks.

If all that sounds like so much pessimism, it is because it is best for those who want the return of a Golden Sparrow to be prepared for a Black Swan.

Who knows, like the benign fall in oil prices, there may be pleasant surprises!

Shall we call that the Golden Swan?

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