YV Reddy’s criticism: Economy can’t grow just through demand creation, falling household savings a concern

She had said that Rs 86,912 crore had been released for GST compensation payable for all states till May 31, 2022. She had also clarified that it was the GST Council, and not the Centre, who decided who the compensation is to be released for. Sitharaman has reiterated the AG certification requirement for the GST claims clearance earlier as well.

Talking about the recent rate hike by the US Fed, Reddy said that given the recent American situation, and the way depositors panicked, increasing the interest rates was the best solution for the Fed. Last week, the Federal Reserve raised interest rates by 0.25 percent, citing concerns over inflation and asserting that the crisis-hit banking sector was strong, sound, resilient and well-capitalised. This move has resulted in the interest rate being set at 5 percent, the highest level seen since June 2006.

He said good banking is one where 30 percent of the banking system is with the public sector banks. "Public sector banks remove the information asymmetry between regulator and banks," he said.

"Central bankers as a group are facing some of the biggest challenges," said former Reserve Bank of India (RBI) governor Dr YV Reddy.

He said the central bankers, initially, in the face of COVID-19 were forced to cut rates, create liquidity and buy government bonds to finance large fiscal deficits. Then as inflation surged in every country, they were under pressure to hike rates. "Now the very rise in rupee rates is creating financial instability problems. And for EMs, there is the added problem of currency weakness and capital outflows. How should central bankers think when faced with not dilemmas but trilemmas?" said Reddy.

The former RBI governor also said that India and China cannot replace the US. China is not a global currency he said, adding, "The (US) dollar is too deeply-intertwined in global trading and the economic system," he said.

He also said that India is in a good position as the rest of the world is in serious trouble for the short term at least. "India has managed to manage their short-term goals," he said.

Reddy praised present RBI Governor Shaktikanta Das saying he has collaborated with the government. "When there is a crisis, you cannot operate without the government," he said, adding that structural changes or crises cannot be done without the government.