Impact of Fed hike on India should be minimal: Chief Economic Adviser
New Delhi: The rate hike by the US Federal Reserve is in line with global expectations and its impact on India will be "very minimal" due to our strong macroeconomic conditions, Chief Economic Adviser Arvind Subramanian said today. "This rate hike was widely anticipated, so I think markets should have priced this in and there shouldn't be much of an impact of this per se (on markets)," he told reporters here. "As far as India is concerned, we are really well cushioned. Inflation is coming down, fiscal deficit situation is very good, external situation is also robust. So, I think for all these reasons, impact on India would be very minimal," he added.
Subramanian further said that there should not be much volatility in the Indian market due to this global development. US Federal Reserve had last night raised the interest rate by 0.25 per cent. "The impact (rate hike) will happen depending upon what it signals about the future rate hikes. I think that is still a little bit open. Lets wait," Subramanian said. It was a reluctant rate hike on part of the Fed as there were voices in the US saying that the economy was not strong enough to take such a step, he added.
Das said there are unlikely to be any capital outflows because of the Fed rate hike. "We have to keep in mind the fact that India's import bill is substantially lower, of course, we are benefiting out of substantially low crude prices. "So, therefore, one would not expect substantial outflows" he said, adding that this development is something for which emerging markets were well prepared. There is an overall macro economic stability and CAD and fiscal deficit are also under control, Das said.
"This year the government is committed to maintain 3.9 per cent fiscal deficit notwithstanding additional expenditure which has been taken as a part of the supplementary demands, presented in Parliament" he said. On the impact of Fed rate hike on forex market, Das said: "I would not like to make a guess but I think the rupee on the whole will remain stable is the expectation."
He further said that RBI has already made its policy announcement in this regard and he has nothing to add. The US Fed rate hike is on expected lines, Das said, adding that both the 25 basis points rise and accommodative outlook as spelt out by the central bank are as anticipated. "They (Fed) are also talking about gradualism, as of now 25 basis points they have announced, about the remaining part of it which they will announce in 2016, it is something that we have to wait and see" he said.
Das expressed hope that the US Fed will be very watchful about the emerging market situation, their job figures and growth numbers. "What is very good is that Fed chief has also talked about the sustained nature of US revival, which I think is good news for countries like India, which export a lot of it and services to a market like US" he said. "In any case, India is well prepared with regard to such external vulnerabilities if at all they arise in the future," he added. "So far as the central bank is concerned and so far as the government is concerned, both of us are working in tandem to deal with the situation" Das said.
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