Asserting that the Indian economy is "very stable" at macro level, Chief Economic Advisor Dr. Arvind Subramanian on Thursday said one of the challenges for the economy in the short term would be to manage the demonetisation fall-out.
"How do we manage demonetisation in the next few weeks and months", he said, adding "this would be a short term phenomenon.
Referring to some important global developments like the latest hike in the US Federal Reserve rates and firming up of crude oil prices, he said the Indian economy is "well- cushioned" to cope up with these events.
"This was anticipated and expected. My own view is that the Indian economy is very well cushioned to absorb the impact of this. The RBI policy also took account of this in a very sensible way. There may be some short term things. This is not something we need to worry about".
When asked about the outflows from the emerging markets, he said "After the US elections there were already big fund flows from the emerging markets. But given that India is in bright spot, the impact on us would be much smaller."
With regards to the rising crude oil prices, Subramanian said "If it persists there would be some implications, but I don't think oil prices are going to surge to a level which is difficult to handle for India".
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Responding to the demand from the ASSOCHAM for lower rates in the Goods and Services Tax (GST) Subramanian said the lower and simple taxes are always preferable, but there was a strong case for inclusion of real estate and electricity into the GST value chain.
He echoed the views express by ASSOCHAM president Sunil Kanoria and several other senior members of its managing committee who shared their perspective about state of Indian economy particularly after the demonetisation of high value currency notes.
Listing the global challenges to be dealt by the Indian economy, Subramanian said while the strengthening of US dollar would be of less concern, the main headwind can be felt in the form of weakening of Chinese currency and those of other competing economies.
He said that not only the Chinese currency but Vietnam, Philippines and Bangladesh currencies which would become more competitive. This could affect India's competiveness in the export markets.
He said if the Indian economy has to grow by 8 percent, then exports must expand by 15 percent.
"But key factor to watch, in the unfolding global scenario, would be whether the developed countries would be able to handle more exports especially that of services from developing countries like India," he said.
Subramanian also pointed out several key economic reforms undertaken by Indian economy in the recent past. This included passage of GST Constitutional Amendment Bill which he described as the "mother of all achievements".
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