Data-driven economic and financial projections need to be realistic

- Consensus for the US in 2023 was that the S&P 500 would fall but it rose 24.2 percent

Is it any wonder that economic and financial projections are at a very alarming level, yet the media publishes dozens of projections at the beginning of the year on economic growth and how the markets will perform by the end of the year. Guessing in America is a more formal and organized business. The consensus view for the US for 2023 was that the S&P 500 would fall but it rose 24.2 percent and the Nasdaq rose more than 50 percent. China's stock markets were expected to rise after the drop in Covid but suffered a fall. The boom around predictions of a recession in America disappeared and its gross domestic product rose sharply.

The Federal Reserve's interest rate hike was expected to slow consumer spending and business growth, but instead the economy continued to grow, interest rates fell and stock markets rose. On the other hand, significant breakthroughs in artificial intelligence research fueled an unprecedented boom in American technology stocks.

The nature of markets and economies is complex and constantly evolving and changing. They are not stable. Therefore, predicting how they will behave is incorrect or futile because new events trigger mutually influencing processes that lead to unpredictable outcomes.

For example, after a startling silence on the economic front between 2014 and 2021 (apart from a surprise tax cut in 2019), the Modi government suddenly launched multiple growth programs at once, rarely seen in India. This probably makes it easier to predict long-term outcomes. But as long as the policies remain intact and are actually implemented.

The Manufacturing Promotion Scheme, launched on a small scale in March 2020, aimed to make India a manufacturing hub and reduce dependence on imports, particularly for goods from China. Incentives are provided under the scheme if the sales of locally produced products gradually increase and reach a pre-determined target. However, the scheme has met with limited success so far as imports of finished goods have been replaced by imports of spare parts and only assembly work is being done here.

It seems that the PLI scheme is very ambitious. The scheme is nowhere near the target of creating 60 lakh jobs and will provide an incentive of Rs 2 lakh crore between FY21 and FY27. However I believe Indian enterprises are more ambitious, eager and resourceful for the first time and to some extent this scheme will boost production.

Economists have complained that most of the budget allocation is spent on funding revenue expenditure. It mainly includes government salaries and allowances and interest paid on loans. In such a situation there is no money left for capital expenditure. For Railway Rs. The allocation of 2.40 lakh crore was 75 percent more than the actual 23. The government has also promised that over the next few years, the capital allocation for the defense sector will be Rs. 8.30 lakh crore will be. Defense Production and Export Promotion Policy 2020 by 2025 Rs. 35,000 crore including exports of Rs. 1.75 lakh crore domestic product has been targeted. Energy is another sector that has seen massive capital spending on everything from renewable energy to smart grids and smart meters.