As the country comes to terms with the demonetisation of Rs. 1,000 and old Rs. 500 notes, Chief Economic Adviser Arvind Subramanian spoke at an Assocham event on various issues.
Excerpts from his speech:
>> It's fair to say that the Indian economy, as far as macroeconomic condition is concerned, is very stable.
>> Both the Consumer Price Index (CPI) and the Wholesale Price Index (WPI) have come down. Current account deficit is very low and is being financed by Foreign Direct Investment. We have been reducing the fiscal deficit consistently.
>> From the domestic point of view, there are many legislative achievements in 2016. Aadhaar Bill is very important for the Jan Dhan Yojana, Aadhaar, Mobile numbers (JAM) mission.
>> Legislation has been passed to institutionalise monetary policy.
>> The bankruptcy code is very important in enabling exit from operating in India. Entry has become very easy, but exit is still a problem.
>> GST constitutional amendment bill is the 'mother of all achievements'.
>> FDI policy has been liberalised considerably. FDI surged in Q2, which is a very encouraging sign.
>> Domestic challenges: how to manage demonetisation over the next weeks/months until remonetisation can be done fully.
>> Then there is the twin balance sheet problem of the corporates and the banks.
>> International challenges: US interest rate rising and dollar getting stronger. But I am less concerned about this since the Indian economy is still strong macroeconomically.
>> The other challenge is to keep an eye on the currency situation in South East Asian countries and in China.
>> Third international challenge is that if we need strong growth, then exports have to grow 15-20% every year. But the question is, can the advanced economies buy our exports? Can they handle service exports from us?
>> GST: We should aspire to simple, clean rates that are lower rather than higher. This will help in fight against black money.
>> Sale of land and real estate need to be part of GST. That way the input tax credits can enter the system. Stamp duty can be kept separate.
>> Need to bring electricity charges as part of GST.
>> Manufacturing push: if China did manufacturing for 25 years, why can't we do services for 25 years?
>> Fed rate hike: it was anticipated and expected. The Indian economy is very well cushioned to handle it. The RBI took the possibility into account during its latest review.
>> Rising oil prices: don't focus on the ups and downs. When oil prices go up, nimble producers will also increase production. Don't think oil prices will surge to a level that the Indian economy can't handle.