New Delhi: Planning Commission Deputy Chairman Montek Singh Ahluwalia on Monday said Indian economy is mostly driven by domestic factors and markets here will stabilise in the short-run, despite the recent meltdown on account of the US downgrade.

"The high growth of Indian economy is largely driven by internal factors. I feel the market will stabilise in the short-run. I don't expect to see a big negative impact but we have to watch the situation," Ahluwalia said.

"The impact on India depends on what happens in the world. If there is financial instability (globally), there will be some impact," he added.

Ahluwalia said the downgrade of the US' long-term sovereign ratings by S&P -- which has happened for the first time since 1917 when the US was first given a rating – was not unexpected.

"The S&P downgrade of the US debt was in some sense expected because fiscal unsustainability issue of the US has been known for some time. There are similar problems in many European countries," Ahluwalia said.

The Plan panel chief said there will be some short-term instability in the markets.

"But world leaders are quite aware that they should try to contain this instability," he said.

Asked about the impact on India, Ahluwalia said that if there is financial instability globally, it will affect the Indian economy to some extent.

"Industrialised countries' growth rate is less than it should otherwise be," he said.

Regarding the downgrade rating which has come under criticism in certain quarters, Ahluwalia said: "I think the key issue is that S&P seems to be under the impression that US is not going to be in a situation to deal with fiscal unsustainability issue.

"They (US) may not be doing something today but the real question is that over the next few years can they bring this under control and I am hopeful that they can."

Earlier in the day, Ahluwalia told a private news channel that almost all the industrialised nations have problems and the world economy was definitely looking weaker than what it looked about six months ago.

He also said the focus on the fiscal deficit abroad will actually translate into much greater scrutiny and the people would more interested in looking at India's fiscal deficit position also.

(Agencies)