Here’s a mystery: Even Oxford University historian Peter Frankopan is susceptible to Daniel Craig’s fascination. better known for his popular book new silk road, Francopan decided to dedicate an entire episode of his podcast to the latest James Bond release, no time to die. While this may come as little surprise, a guest on the show was a statement from David Omand, a retired bureaucrat and has headed many of the UK’s security and intelligence establishments. The world of intelligence and secret agents is slippery, full of contradictions and fluid morality; However, Omand is concerned about how the data—dumb in itself—is molded differently in different hands, often even paradoxically. And then he said this: “We’re all really Bayesian, but we don’t think about it formally.”
espionage and bayesian math? Why not. Intelligence work is often laborious and boring – lacking cinematic thrill or embellishment – and probably employs Bayesian methods to calculate risks and probabilities of outcomes. Think George Smiley, John Le Carré’s fictional detective and antithesis to Bond: small, awkward, spectacled and mushy, yet self-destructive to a fault. It’s easy to imagine Smiley using Bayesian math to extract his counterpart, Spymaster Carla, from behind the Iron Curtain. The Bayesian framework, conceptualized by the 18th-century British Presbyterian minister Thomas Bayes, originally enabled mathematical analysis to include the probability of an event occurring based on previous knowledge of the conditions associated with it. Probability of X, let’s say, given that Y happened.
Bayesian solutions are also widely used in public health. A June 2021 article by Reserve Bank of India (RBI) deputy governor Michael Debabrata Patra and colleagues uses the Bayesian method to study the interplay between the yield curve and macroeconomic factors. Bayesian equations have also been used in several articles by RBI officials. Clearly, the data needs optimal treatment to achieve optimal results. The pandemic has forced policy makers to face several economic crises that defy previous theoretical frameworks. Officials can employ various solution frameworks, including Bayesian platforms, to address India’s difficult economic challenges, but, importantly, this requires the right data and the right use of data.
Here’s an example. The Indian government’s ideological opposition to the fiscal gap has shaped its indifferent response to the prolonged economic slowdown. While the pandemic forced the government to announce fiscal aid, much of it was bottom-up material. A recent report by the International Monetary Fund (IMF) on India surprisingly suggests that the government should adopt a more liberal fiscal policy: “The fiscal space has been depleted by an increase in the public deficit and debt, and high fiscal risks. However, The large-scale economic slowdown projected for the near term, high fiscal multiplier, potential adverse impact of the pandemic on production in the medium term and favorable credit dynamics suggest that it is appropriate to provide additional financial support in the near term… This could be mitigated by targeted spending on employment support and health spending.Coming from the IMF, which is known for its aversion to fiscal deficits, it signals widespread concerns about the pandemic raising India’s poverty levels. The government will now need to balance two important objectives: higher financial support in the short term and fiscal consolidation programs in the medium term.
But, more importantly, the IMF is clearly looking at the finer data on poverty, while the government is paying attention to the headline numbers. For example, the premature celebration on vaccination numbers conveniently highlights the fact that nearly 70% of Indian adults are still not fully vaccinated.
Another example is the RBI’s pursuit of a liberal monetary policy, even before the pandemic, in the hope that lower interest rates would spur private sector capital investment. Unfortunately, that needle hasn’t moved despite a long period of record low interest rates. Again, there is no comprehensive analysis yet on who deters private sector investment. The government’s current focus on infrastructure investment is expected to crowd out private sector investment. The IMF, while supporting such spending, feels that private sector participation is likely to remain less important in the medium term. It also affects the financial planning of the government.
The third problem concerns central banks in advanced economies. Most central banks in rich countries are scanning inflation data to see if rising prices due to a collapse in supply chains are temporary; If the latter, it could force central banks to raise interest rates. Experts believe that some components of the inflation index, such as fuel prices, may remain elevated for a longer period. Bank of England Governor Andrew Bailey has already indicated that a rate hike in the UK may be inevitable. But here’s the dilemma: Given the faltering and uneven growth in economies, any increase in interest rates could stifle nascent growth. The ripple effects of high inflation and low growth globally could erode India’s growth impulses.
Clearly, the RBI and the government need a credible rear-guard action plan, backed by data but devoid of outdated ideologies.
Rajrishi Singhal is a policy advisor, journalist and author. His Twitter handle is @rajrishisinghal.
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