India's GDP growth slump has a few forecasting lessons to offer

The exercise is prone to the over-optimism of an echo chamber and realism tends to get short shrift

- VIVEK KAUL

India's growth in gross domestic product (GDP), adjusted for inflation, for the period July to September slowed to a seven-quarter low of 5.4%. This caught many by surprise and left some shocked, especially market analysts and economists who make a living by forecasting and analysing such trends. A Mint poll of 26 economists had predicted median growth of 6.5%.

This deviation of the actual from the expected raises a few points.

First, the GDP growth rate was way off most forecasts. These projections typically tend to cluster and very few deviate significantly. Those in the forecasting business seem to be believers in what economist John Maynard Keynes wrote in The General Theory of Employment, Interest and Money: "Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally."

Essentially, market analysts and economists have an incentive to echo each other. They want to come up with forecasts that are similar, if not the same, as those made by others because they don't want to be wrong when the majority gets it right. They only want to be wrong when the majority also gets it wrong. So, while making a forecast, they are devoting their "intelligences to anticipating what average opinion expects the average opinion to be."