Macro has become riskier, can't pretend higher oil prices won't stoke inflation: CEA Subramanian

Macro indicators have only become riskier relative to a few months ago and one can’t pretend that higher oil prices won't stoke inflation in India, according to Chief Economic Advisor Arvind Subramanian.

“If we weather this volatile oil turbulence, the economy will be in good shape,” he said.

Subramanian, in an interview with CNBC TV 18, also spoke at length about the distress in the banking system.

He believes the government and Reserve Bank of India (RBI) could have taken long to identify the twin balance sheet problem but the worst is behind with respect to bad loan recognition. He feels RBI's strong balance sheet should be brought to the aid of ailing banks.

Subramanian said the possible reasons for the swelling of Non-Performing Assets (NPA) on the balance sheet of banks was a combination of three factors —the bet on growth by bankers, the delayed passing of the Insolvency and Bankruptcy Code (IBC), and the public review of bad assets not taking place until later.

Subramanian said although the resolution process under IBC is underway, it is due to the overburdened NCLT process, and the unavoidable delay of the Supreme Court intervention in the process that is slowing down the process.

Also read: Chief Economic Adviser Subramanian says three-tier GST structure possible

With regard to the recapitalisation of public sector banks (PSBs) he said, “Recapitalisation must not be divorced from reforms,” adding much progress is to be made with regards to recapitalisation and reform.

Subramanian said a three-tier structure under Goods and Services Tax (GST) is possible, ruling out a single-rate tax system.

"I think in India the debate should be about why can't we have three rather than why not one?" he said.

“The 28 percent tax slab ought to be pared down with the passing of the time,” he said.

Currently, GST has four broad tax slabs- 5, 12, 18 and 28 percent-- and three percent tax on gold and other precious stones.

He also noted the GST Council’s efforts towards the simplification of the indirect tax regime since it was first rolled out on 1 July in 2017.

With respect to the ongoing farmer’s distress nationwide, he said creative measures like direct benefit transfer would need to effectively tackle the issue. Subramanian also said both the Centre and the states need to collaborate with each other.

Subramanian, who is soon to officially step down from his position as the CEA, was appointed to the finance ministry on October 16, 2014, for a period of three years. In 2017, his term was extended for a year.

When asked as to when he would be leaving, he said the exact date has not yet been decided

"I would be leaving in a month or two," Subramanian said, adding he may be physically leaving India but India is not going to leave him.

The process of finding his successor will start soon, he said.