NEW DELHI: Chief Economic Adviser K V Subramanian on Wednesday said the impact of 'taper tantrum' or withdrawal of monetary stimulus by the US Federal Reserve on India may not be much given the strong fundamentals of the country's economy.
Many economists have expressed concern that emerging markets cannot afford a repeat of the 'taper tantrum' market disruption that occurred in 2013.
Fundamentals of the economy are much better now compared to what it was during the global financial crisis, he said at the 13th flagship Annual International G20 Conference organised by ICRIER.
"So, I anticipate that while there may be some short term impact possibly but overall I don't think that the tapering process will affect the Indian economy that much," he said.
Taper tantrum phenomenon refers to the situation in 2013 when emerging markets witnessed capital outflows and spike in inflation after the US Federal Reserve started to put brakes on its quantitative easing programme.
Expressing optimism on the disinvestment front, Subramanian said, this year is going to be very different from the past years.
The government failed to meet its disinvestment target in the last three years, raising question over the optimistic target of Rs 1.75 lakh crore estimated for the current fiscal.
So far this financial year, Rs 9,110 crore has been mopped up through minority stake sales in PSUs and sale of SUUTI stake in Axis Bank.
Air India divestment will take place and measures on privatisation of two public sector banks are likely to be announced soon, Subramanian said.
Talking about the health of the financial sector, he said the banking sector has become profitable and NPAs have gone down compared to the pre-COVID situation.
"The first line of defence and the second line of defence are very important to withstand the bad loans that may arise due to COVID crisis. So, the banking sector looks to be in good health and that is important because the slowdown even before the pandemic happened primarily because of the financial sector," he said.