Source: The Indian Express
Context:
A study by the Reserve Bank of India (RBI) has spoken about the possibility of capital outflows of about $100 billion from India in case of a major global risk scenario called as “black swan” event.
Background:
- The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001.
- The term originated in lieu of sighting a rare black swan in Australia. Earlier to which Europeans believe that only white swans exists in the world.
- Thus this event is named so, as a remark of an unprecedented event.
- The First time it had noticed in 2008 as global financial crisis – a black swan event triggered by a sudden crash in the booming housing market in the US.
- The fall of the Soviet Union, the terrorist attack in the US on September 11, 2001, also is considered as a Black swan event.
About Black swan event:
A black swan is a rare, unpredictable event that comes as a surprise and has a significant impact on society or the world.
These events are said to have three distinguishing characteristics – they are extremely rare and outside the realm of regular expectations.
They have a severe impact after they hit and they seem probable in hindsight when plausible explanations appear.
Criteria to call an event as a ‘Black swan’:
- Unpredictability of the event
- Loss at global level or a regional level at a whole
- Its effects can be seen
How India can be safeguarded from Black swan events?
As a black swan event engulfed the world with Russia and Ukraine at loggerheads,it is a clarion call for economies like India to draw lessons from it.
Utilising services sector: Since the pandemic the world has changed, offering opportunities for the services sector to create more income, employment, investment and trade.
Reduce dependency on crude: Exploring and using unconventional energy will not only help the country save billions on imported fuel but also protect it from energy price jolts. The government must step up its efforts in encouraging investors to take interest in alternative fuels like natural gas, solar, coal bed methane and fuel cells, amongst others.
Diversifying defence sources: All efforts should be made towards India based production of defence equipment and necessarily sharing of technology know-how.
Financial infrastructure: Besides the on-going crisis in Europe has also shown the dependency and the impact of suspension of popular global platforms like MasterCard, Visa, and American Express.
In lieu, Russian banks may possibly issue cards with China’s UnionPay.
While RuPay has made significant inroads into the domestic market, it has still to compete with the global majors. India could work along with its counterparts in South Asia in promoting such financial instruments for the common good.
Conclusion:
Planning to deal with such concerns successfully is a major challenge for decision-makers, but one that needs to be addressed as a matter of urgency. Delineating here are certain aspects which India can increasingly focus on as a matter of its strategic interest, in the process of becoming more indigenous, and possibly a more indispensable force globally.
