Forecasting may have got even more inexact

Less than 48 hours after the Reserve Bank of India (RBI) marginally raised India’s growth forecast for FY2024 to 6.5% from 6.4% last week, the International Monetary Fund (IMF) lowered it below the psychological level of 6%. Though it is tempting to question why the central bank and the global agency had contradictory forecasts, it may actually mean little. In all probability, the IMF number – down from 6.1% to 5.9% – was spewed out by a model that pegged slower growth for India when the global growth was being downgraded by the agency.

For RBI, the monetary policy could well have been an occasion to bring the growth number at par with what finance minister Nirmala Sitharaman had predicted in the Union budget three months ago. Little has changed and no new information has trickled in the past few months for any agency to tweak its forecast. While the IMF number may have been an outcome of a mechanical exercise, the central bank’s decision to skip rate hike in April (in the middle of higher growth expectation) may seem befuddling, especially when it does not expect to meet the target rate of 4% inflation even in 2025. It could suddenly appear that the 4% number has lost its relevance.

Indeed, life would be simpler if we don’t read too much into these numbers. Truth to tell, we live in an age of extreme data dependency, with no well-behaved economic cycles. In such a landscape, the forecasting exercise itself, fraught with geopolitical and other uncertainties raging across the world, seems to have lost its earlier significance. The forecasts of central banks as well as multilateral agencies last only till their next meeting. Like many listed companies, they also live from quarter to quarter.