Forecasting 2024 & Taking Stock of 2023
Dear Reader,
We wish you a happy and prosperous new year. At Takshashila, we continue the tradition of predictions for the new year we started some time ago. As policy analysts, why is it important for us to make forecasts?
The introduction to psychologist Philip Tetlock’s seminal work Superforecasting: The Art and Science of Prediction notes:
“Everyone would benefit from seeing further into the future, whether buying stocks, crafting policy, launching a new product, or simply planning the week’s meals. Unfortunately, people tend to be terrible forecasters. As Wharton professor Philip Tetlock showed in a landmark 2005 study, even experts’ predictions are only slightly better than chance. However, an important and underreported conclusion of that study was that some experts do have real foresight, and Tetlock has spent the past decade trying to figure out why. What makes some people so good? And can this talent be taught?”
Taking a cue from Tetlock’s work, Pranay Kotasthane wrote way back in 2021:
“There are two kinds of 2021 predictions I have come across. The first kind says that the post-pandemic world will be the same as the pre-pandemic one. The second kind says that the post-pandemic world will have a far-reaching impact on that one phenomenon that the author is deeply invested in.
Both kinds of predictions are susceptible to what Philip Tetlock calls ‘outcome-irrelevant learning’ — a situation wherein no matter the reality, people are in an excellent position to explain that what happened was consistent with their view. One way to check outcome-irrelevant learning is first to make specific, measurable predictions and then reflect on real-world outcomes at the end of the prediction horizon.”
All said and done, making predictions is tough, and it is even tougher to go back in time and examine what went wrong (or right). However, the folks at Takshashila decided to bite the bullet again and made some bold forecasts on the first episode of 2024’s All Things Policy, with a promise that they will come back next year to check how they fared. They also took the opportunity to revisit the predictions they made last year.
Listen to this special episode of All Things Policy here:
You can also listen to some of the previous episodes on forecasting here, here, and here.
What about the Global Macroeconomy in 2024?
In his inimitable style, Anupam Manur writes in his year-end round-up piece:
“Macroeconomists were created to make weather forecasters gain credibility” goes one joke. “Economists have successfully predicted 9 out of the last 5 recessions” is another dig at the predictive ability of the macroeconomics discipline. Beyond the humour, it points to the obvious complexity of interaction between hundreds of related variables in a complicated geopolitical scenario.
Despite the obvious risks involved in speculating about the future in the economic domain, many brave economists undertake foolhardy tasks of making year-end projections and this is one such attempt.”
As the global economy slowly embarks out of pandemic woes and fears of interest rate hikes-induced recession, Anupam has some positive news for you (albeit with some caution):
“In 2021-22, almost everyone was convinced that the US will enter into a recessionary phase, given the aggressive monetary policy stance taken by the Federal Reserve to combat the high inflation rate. The debate was whether it would be a hard crash or a soft landing, but there was near consensus that there would be a slowdown. And when the US economy slows down, most of the world will feel its effect. However, despite many rate hikes by the Fed, the US economy remained remarkably resilient, and the job market has been incredibly robust.
The expectation for global GDP growth is between 2.6 percent (Goldman Sachs) to 2.9 percent (IMF) based on the assumption of strong US-led growth. Inflation in most parts of the world is expected to be past their peak and thus, policy rates will remain stable or be reduced. The Fed has indicated about 75 bps cut in the policy rate in 2024. Not to play spoilsport, but it is important to bear in mind the significant lag in macroeconomics between the interest rate hikes by the Fed and the corresponding slowdown. The US economy could yet be affected.”
However, not all is well in China, which could offer up opportunities for India:
“As long as the Chinese slowdown is well contained and does not spread into a global contagion, India can afford to look at the bright spots. India’s China + 1 strategy of attracting companies seeking to exit China can get a boost. Further, a Chinese slowdown will put downward pressure on commodity prices – from oil to iron ore, which can be good for India. Fresh investments, both FDI and FII, will look at other emerging markets outside of China for investment opportunities and Indian equity markets are definitely an attractive proposition. Rate cuts in the US will only increase liquidity, which can result in higher FDI and FII flows into India in 2024.”
Read his piece for Moneycontrol here.
Digging into the Chinese Economy
We already know from Anupam that the Chinese economy is going through some troubled times. But China is not going to remain a mute spectator and is already planning a fightback, as evident from the 2023 Chinese Central Economic Work Conference (CEWC), “an annual meeting mechanism of the Communist Party where the economic direction of the nation for the upcoming year is deliberated.”
So what does China’s 2024 economic policy look like? Anushka Saxena, research analyst, steps in to answer:
“To begin with, the 2023 CEWC acknowledged that China is indeed leaving behind three years of tumultuous economic policy planning during the COVID-19 Pandemic, concentrating now on economic recovery in key areas.
The first key area, in this regard, is dual circulation. As global demand has continued to decline amidst heightened sentiments of protectionism and ‘de-risking’, thereby leaving overcapacity in China’s manufacturing sector unaddressed, the country is now looking inwards to boost domestic consumption and only allow for a complimentary relationship with international demand.
The Chinese President Xi Jinping has referred to this as the “New Pattern of Development,” and is an ambitious structural reform for a country known as the world’s manufacturing hub. Hence, it is likely that going forth, the country shall lay increased emphasis on domestic demand as the mainstay of economic growth, with international demand only complimenting it.”
How is China responding to the global trade and investment backlash it has faced in recent years, along with calls for decoupling by its trading partners?
“Finally, to alleviate some of the economic concerns caused by capital flight and geopolitical competition, in addition to reiterating self-reliance and domestic consumption-led growth, the 2023 CEWC has made the interesting provision to “promote balanced trade” to “increase international demand.” It seems from this statement that China is willing to take some of the fences down vis-a-vis access to its market for its key trade partners (especially the European Union, which is now increasingly emphasizing “de-risking”). In doing so, trade may become more “balanced” and not necessarily lop-sided in China’s favour. It not only helps China to continue on the path to “opening-up,” which has been called for many times in the CEWC readout, but also fulfills the two-pronged goal of enabling China’s high-quality growth and circumventing any real decoupling.”
Read Anushka’s detailed assessment of the Chinese economic policy outlook for 2024 for The Hindu here. She followed it up with a podcast on the subject with Manoj Kewalramani, which you can find here.
Lastly, if you are interested in making some policy predictions yourself, why don’t you head on over to OpenTakshahila now?
Reforming RAW for the Information Age
The Research & Analysis Wing (RAW) has been constantly making news in recent months. Assassinations of suspected enemies of the Indian State by “unknown gunmen” operating in different countries are publicly celebrated on social media platforms and attributed to the covert action capabilities of RAW.
However, the failed assassination plot of Khalistani separatist Pannun in New York has laid bare the quagmire of intelligence and covert operations. While the court case against those involved goes on in the U.S. and the outcome of the high-level enquiry committee set up by the Indian government to look into the matter is yet to be seen, Pranay Kotasthane and Shibani Mehta argue that the crisis presents an opportunity:
“There have been plenty of articles on its impact on India-US ties, and the usual partisan sniping as well. But there’s one underrated angle to this discussion: this fiasco opens the Overton window (a window of possibility) for India to reform its external intelligence Agency. For India’s external intelligence agency, there are two specific areas of concern — institutional control and human resource management.”
The problem according to them lies in the intake of personnel to RAW:
“While the solutions to institutional control are well-articulated, the issues related to human resource management are far more wicked. On this front, R&AW faces a peculiar problem. The Research and Analysis Service (RAS), which was supposed to be the primary intake mechanism for officers, has given way to intake through the UPSC route. The service is now mostly run by police officers on permanent secondment from their state police service. This structure creates many principal-agent problems that undermine the agency’s effectiveness.
The result is that officers are brought in from the Intelligence Bureau (IB) to fill capacity gaps. While that might not seem like a problem at the surface level, there are fundamental differences in the environments in which the two agencies operate. The IB operates on home soil, with the full protection of the State, whereas R&AW operates overseas and undercover with no formal protection. Finally, analysis skills and operational methods are also vastly different, particularly concerning communication with assets.”
Therefore, they argue that India’s external intelligence agency requires reforms across the entire ‘supply chain’ of talent management, i.e., pre-recruitment, orientation, mid-career reviews, and post-retirement stages, and offer specific recommendations on each count.
Read the piece they wrote for the Times of India here.
Wait There’s More
India’s National Geospatial Policy celebrated its first birth anniversary last week. Dr. Nithiyanandam, Head of the Geospatial Programme at Takshashila, co-authored an op-ed with Wg. Cdr. Satyam Kushwaha, Director of the Indian Space Association, where they analysed the progress of the policy thus far. You can read the piece here.
Dr. Nithiyanandam also released the sixth edition of the Takshahsila Geospatial Bulletin, where he studies the urbanisation taking place in the Tibetan region. While you can read the full newsletter here, there is also a TL;DR for you:
“China is strategically advancing urbanisation in Tibet to strengthen its control over the region. In recent times, several new urban areas have emerged, although the pace of urbanisation remains relatively slow and is not as rapid as that observed in other parts of China. China is strengthening its role in the region with enhanced military and economic ties, plus new air routes between Kathmandu and Lhasa, opening doors for tourism and collaboration.”
As the year 2023 drew to a close, the researchers at the China Studies programme were hard at work to bring to you two special year-end editions of the Eye on China newsletter. The first one discusses the upcoming Taiwanese elections and military technology advancements in China over the year. The second one brings to you all the updates from the meeting of the Standing Committee of China’s top legislature, the National People’s Congres, as well as updates from China’s Diplomatic Work Conference.
Do you know what is RISC-V technology ecosystem? In his latest blog, Satya S Sahu warns that
“In the rapidly evolving world of semiconductor geopolitics, a new fault line is emerging, one that could have far-reaching implications for countries like India. The United States, in its strategic tussle with China, could be contemplating imposing export controls on (Reduced Instruction Set Computer or RISC-V technology. Developed at the University of California, Berkeley, RISC-V is an open-source instruction set architecture (ISA), a set of basic instructions and functions that allows companies to develop microprocessors based on this specification.”
So is there a way out? Read his piece to find out.
That’s all from us this week. See you next!