A huge rise in uncertainty

The global economic policy uncertainty index rose by a massive 149% in the 11 months to November 2016, its steepest rise ever


India’s uncertainty index against the global one is more subdued, indicating that economic policy has largely been predictable. Graphic: Prajakta Patil/Mint
India’s uncertainty index against the global one is more subdued, indicating that economic policy has largely been predictable. Graphic: Prajakta Patil/Mint

Will 2017 bring more stability in policy? Unlikely, as the global economic policy uncertainty index is at its highest level since inception. A product of three researchers, the index tracks the general state of the economy as it relates to businesses. It can include broad economy-wide conditions or the specific economic conditions of a particular industry.

Data shows that the index rose by a massive 149% in the 11 months to November 2016, its steepest rise ever. Indeed, 2016 saw several unpredictable events—from Britain’s vote to exit from the European Union to Republican nominee Donald Trump getting elected as president of the US. Central banks, too, pushed the boundaries of unconventional measures and took interest rates to negative territory.

The index for India was fashioned in 2003 and is a scientific survey of seven newspapers and the articles pertaining to economy in them. India’s index against the global one is more subdued, indicating that economic policy has largely been predictable.

In its Financial Stability Report, the Reserve Bank of India referred to this index to state that economic policy in India is more stable. However, the index surged in November, given the out-of-the-blue move by the government to demonetise high-value currency notes that purged 86% of cash with the public.

The index for December is likely to reflect the uncertainty in the wake of demonetisation but as India meanders through the unknowns of a post-demonetisation economy, some predictability may return by mid-2017.

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