Pinaki M. Mukherjee

  Indian Business-Cycles Foresight Institute (IBFI) A Collaborative Platform for India’s Economic Foresight The  Indian Business-Cycles Foresight Institute (IBFI)  is an open, independent platform dedicated to strengthening India’s capability in  business-cycle research, macro-environment measurement, and long-term demand foresight . IBFI brings together ideas, insights, and analytical frameworks from  industry professionals, economists, researchers, data scientists, strategists, and corporate leaders  who believe that India needs stronger, forward-looking economic intelligence. Founded by  Pinaki Mukherjee , IBFI is built with the mindset of  collaboration, shared learning, and collective foresight —not ownership. What IBFI Stands For A shared space for deep economic thinking IBFI is designed as a neutral, non-commercial platform where anyone working on Indian macroeconomics, cycles, demand, forecasting, or strategic intelligence can contribute k...

  Herewith, I am sharing an insightful article (link given below) by Prof. Amartya Lahiri, discussing why the exit polls failed to gauge the nation's mood accurately in 2024.  The article emphasizes that relying on predictions based on the conclusions of competitors and peers can often lead to incorrect outcomes. The article suggests a strategy that somehow mirrors Stackelberg's game. A game in game theory is any interaction between multiple people in which each person’s payoff is affected by the decisions of others. In a Stackelberg game, there is one player (say “leader”) who moves first, and all other players (the “followers”) move after him. However, such strategies should not be adopted while doing forecasting. The forecasts, whether they are related to business, economics, or any other field, should be based on proven and tested models that are independent of the forecasts of other forecasters. However, it can be challenging because customers/users/audience of a for...

  The price of Brent crude oil has increased to $86 per barrel. The recent surge in price is primarily due to a significant production cut by the largest oil producer among the members of OPEC, the cartel of oil-exporting nations. This demonstrates greater control over production rather than pricing. The price trend in crude oil prices after COVID-19 is much lower than what we saw after the GFC. It seems that the pricing power of the oil cartel may continue to weaken. Major structural shifts are underway in the global energy space. Improvements in energy efficiency have led to a decrease in the amount of oil needed to generate similar economic activities. For example, in India, 0.7 lakh tonnes# of imported oil are required to create 1 US$ billion of GDP in 2021-22, compared to 1.6 lakh tonnes# in 2001. This trend may also be occurring in other parts of the world, as the fuel efficiency of vehicles has improved worldwide. Moreover, the increase in electric vehicles (EVs) is a major ...

CPI inflation fell to 4.9% in Mar’24 from 5.1% in Feb’24. The non-food segment, which accounts for 54% of the CPI basket, only contributed 27% to the overall inflation. Food, which accounts for 46% of the CPI basket, contributed 73% to the overall inflation. Moreover, the major source of overall inflation is just three commodities, namely vegetables, cereals and pulses. These three items represent only 18% of the CPI basket, yet they contributed to 55% of the overall inflation in Mar’24. Outlook: The inflation in these agricultural commodities is unlikely to decrease anytime soon due to the wages of agri workers, which have already been increasing. Additionally, there is a roughly 10% wage increase announced in the Govt. rural employment guarantee scheme which is implemented from April 2024. These wages often serve as a benchmark for determining wages for agricultural workers.

 According to the updated export data on the DGFT website, the rate of decline in exports for March 2023 has decreased from the previously reported 14% to 6%. This change occurred within a month of data revision, resulting in a ~60% reduction in the export decline rate for March. The economists and statisticians at the National Accounts Division of the CSO have a challenging task ahead of them. They need to release the third revision of the Indian economy's 2022-23 GDP on May 31, 2023. This is challenging because a small, even 1%, estimation error in their previous GDP can significantly affect the reported 7% growth for 2022-23. However, rest assured that the upcoming revision in the GDP growth figure will likely be very close to the previously released growth and will not be at either extreme, as highlighted in the table below. 

  The graph for GDP quarterly series (Graph 1) shows the recovery complete. It further shows that there are 3 major AO (additive outliers) in this series. These AOs are like one off injuries to the economy caused by the negative shocks generated from the pandemic and its peripheral factors. Such injuries generally creates permanent damage to a few segments of the economy or even can cause short and medium term nudges to its overall trend-cyclical flow, its seasonal pattern, etc. Therefore we have to assess the strength of economic recovery by adjusting the quarterly GDP series for these AOs. There are established econometrics techniques used by seasonal package in R to do this adjustment with reasonable accuracy. The outlier adjusted GDP growth graph (Graph 2) indicates a trend reversal. The consistently increasing economic growth implies the resilience of the economy to various adverse impacts during 2022-23 like sharp rise in global commodity prices and its first leg impact on do...

 Jul-Sep 2022 quarter (Q2 2022-23) GDP grew by 6.3% YoY, almost in line with the market expectation. The growth is marginally better (8%) compared to the same quarter in the pre-pandemic era, Q2 2018-19. Well, the domestic demand is still not that worrisome. Because the economy still has a fairly good appetite but unfortunately it is being addressed from elsewhere (import).  The domestic absorption (Pvt. consumption + Govt. consumption + Investment) grew at a healthy rate of ~7% YoY in Q2 2022-23. Compared to Q2 2018-19, it grew even faster ~12%. These numbers are much higher than corresponding numbers of Q2 GDP.  The pace of absorption seems to have ramped up domestic services but also imports in Q2. The contact intensive services contributed 47% to the overall service sector YoY growth in Q2. While the non-energy non-gold segment import, which is largely manufactured products, grew at a phenomenal rate , domestic manufacturing declined by 4% YoY in Q2 . Anyways, the GDP...

  The credit disbursement during festive days this year increased sharply compare to previous year. Even, the quantum of disbursement is higher than the pre-pandemic festive days. There is extremely limited possibility that bankers exhibiting irrational exuberance in lending. Overall it seems the surge in this credit disbursement is a combine effect of two major factors: - 1.Benign interest rate regime. After the pandemic shock, RBI cut interest rate to a record low to keep the economy growing at a reasonable rate. 2.Stronger confidence of borrowers in their future income given the pace of normalization in the economic activities (as represented by rebound in the various metrics of mobility, business resumption, e-way bill generation, etc.). While the second factor can become fairly volatile going ahead given the risk of 3rd wave of COVID, the first factor, interest rate, needs more stability to support the aggregate demand. Consequently, MPC may consider maintaining status quo in ...

 Pack the punch Various posts across multiple blogs/websites described Econometrics as a tool for causality identification and explanatory modelling and Machine Learning has been projected as a gizmo for predictive modelling. Well, that is half-truth. Other than explanatory modelling, Econometrics also have remarkable power for forecasting. Timeseries econometrics, a branch of applied econometrics, has achieved repeated success in generating reliable forecasts.  It seems, long stay of econometrics in academia put multiple intellectual layer which snowballed to a gigantic discipline which cannot easily sneak into the doors of many data science practitioners. In business, the fundamental purpose of data is forecasting. To do this appropriately Econometrics Learning, a hybrid (Econometrics + Machine Learning) discipline should work best. Econometrics and Machine Learning are different and complementary. They should not drift apart but combined to pack a punch. Combination forecas...

  Nobel Laureate Economist, Prof. Milton Friedman, once said that “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money (money supply) than in output.” The World is facing a similar situation now. Most of the large economies adopted expansionary monetary policy to fight out the economic effect of COVID-19 led pandemic. Consequently, they increased money supply at a phenomenal pace and reduced policy interest rates to record low. Few major central banks (like US FED) also assured to follow the easy monetary policy for this year. On the other hand, supply of commodities cannot be ramp up quickly given COVID related supply chain disruptions. It is a state where a lot of money is chasing relatively limited metals/commodities in the global market. Consequently, their prices are increasing. The figure below compare the pace of increase in World Bank metal price index and money supply (O...