Unconventional mechanism needed to reduce debt: YV Reddy

Last Updated: Sun, Sep 11, 2011 20:50 hrs

Former Reserve Bank of India governor YV Reddy said the government should adopt unconventional mechanism in both real and financial sectors to reduce debt.

“Quality fiscal policy and primary distribution of income are the two major factors the government should focus on,” Reddy said at a seminar here on Friday.

He said globally it had been a major concern for the government to maintain the equal distribution level. Over the last two decades, the gap between rich and poor was getting immensely wider and that was creating economic uncertainty.

The middle class segment is not much impacted, whereas the upper class is getting richer and the lower strata of society is getting poorer. “To solve this problem, the government should improve the quality of fiscal adjustment,” he added.

Household savings have come down in India, whereas corporate savings have gone up. When the micro economic weakens, it makes the structural problem even worse. So, quality fiscal policy is an answer to that, Reddy said.

Former United Nations Development Programme (UNDP) director Kemal Dervis said this was a major global problem. Citing the US, he said, “During 1970s-1980s, the top 1 per cent of the upper top US population received 8 per cent of the countries GDP, whereas now it has increased three-fold to 24 per cent.”

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