Finance Minister Nirmala Sitharaman should prioritize capital expenditure and infrastructure spending in the Union Budget for the financial year 2025-26 to sustain India’s economic growth trajectory, said Nagesh Kumar, a member of the RBI Monetary Policy Committee, on Sunday.
In an exclusive interview, the eminent economist highlighted the need to bolster public spending amidst moderating growth and global uncertainties.
‘In the context of the slight economic slowdown observed in the second quarter and the need for sustainable growth, the Finance Minister would do well to continue the momentum she initiated two years ago, emphasizing capital expenditure and infrastructure investment,’ Kumar said.
Call for Public Spending Boost
India’s GDP growth in the July-September quarter fell to a seven-quarter low of 5.4%, marking the end of pent-up demand that had driven recovery post-COVID. ‘The Indian economy is now reverting to its pre-COVID trajectory and requires a public spending boost to reignite growth,’ Kumar emphasized.
Sitharaman’s last budget allocated ₹11.11 lakh crore for capital expenditure in 2024-25, alongside introducing viability gap funding to attract private infrastructure investment. Kumar recommended further expanding these efforts in the upcoming budget, scheduled for February 1, 2025.
Rupee Depreciation: A Global Perspective
Commenting on the weakening rupee, Kumar attributed the decline to the strengthening of the US dollar rather than intrinsic issues with the Indian currency. ‘The dollar is strengthening due to robust US economic performance, which has increased demand for the greenback. Consequently, foreign institutional investments are flowing out of India, depreciating the rupee,’ he explained.
The rupee recently hovered around 86.60 against the dollar, touching an all-time closing low of 86.70 on January 13. Kumar suggested maintaining a competitive exchange rate to benefit exports and bolster domestic manufacturing.
Curbing the Freebies Culture
Kumar also voiced concerns over the resurgence of giveaways, labeling them detrimental to long-term development. ‘Resources allocated for developmental purposes are instead promised as handouts. This unhealthy trend should be curbed,’ he said, urging greater voter awareness of the long-term costs of such promises.
Kumar questioned whether voters preferred short-term gains in the form of freebies or sustainable development for their constituencies. ‘People need to realize that freebies are a false promise, as they ultimately hurt economic progress and development,’ he concluded.
As the nation awaits the Union Budget 2025-26 amidst global economic uncertainties, experts like Kumar emphasize the need for prudent fiscal policies to navigate challenges and lay a strong foundation for sustainable growth.
