Mumbai, Aug 25 (IANS): The Indian economy can withstand the fallout of events in China like Monday's biggest stock market plunge, with the reform measures taken by the government and Reserve Bank of India progressing in the right direction, RBI deputy governor S.S.Mundra said on Tuesday.

"In the medium to long-term, we are on the right path from the viewpoint of where we were two years ago and where we are today," Mundra told reporters on the sidelines of industry chamber FICCI-Indian Banks'Association banking conference.

The reform agenda taken by the government and RBI is progressing in the right direction, he said.

The Bombay Stock Exchange fall on Monday, of 1,624.51 points or 5.94 percent, was the steepest ever, surpassing the fall of of 1,408 points, or 7.4 percent, at the close of trading session on January 21, 2008.

The rupee also hit a fresh two-year low of 66.47 to a dollar.

Mundra said the current problems are transient, driven by interconnectedness of the world economies, while India is capable of dealing with any kind of external shocks.

"We have always been telling that we are at a stage where we cannot be disconnected from the global events," he said.

"We are an interconnected market and there would be occasions when these kinds of things will happen, but I think the solution is the right mix of the medium and long term policies," he added.

Finance Minister Arun Jaitley on Monday stressed the need to maintain course on economic reforms in the face of such "transient crisis".

RBI Governor Raghuram Rajan said on Monday that India has foreign exchange reserves of around $380 billion and these would be used if needed to subdue the volatility in the currency market.

Speaking to reporters on Monday here on the sidelines of the same conference, Rajan referred to his earlier comments that the central bank was not a cheerleader for the economy and said it was not for the RBI to lift sentiments unduly to deliver booster shots to the stock markets.