Finance Minister Nirmala Sitharaman, in the Budget for the financial year 2025-26, needs to focus on capital expenditure and infrastructure spending to boost economic growth and make it more sustainable, RBI Monetary Policy Committee member Nagesh Kumar said on Sunday.
The eminent economist noted that sustaining infrastructure expenditure and building on it further would be highly beneficial for creating a more robust trajectory of economic growth for India.
"In the context of the slight economic slowdown observed in the second quarter, and overall, there is a need to boost growth and make it more robust and sustainable.
"The finance minister would do well to continue this momentum (in Budget 2025-26), which she herself initiated two years ago, by putting great emphasis on capex, infrastructure spending, and increasing it to very healthy levels," he said.
The Union Budget for 2025-26, set to be presented by Sitharaman on 1 February, arrives amidst global economic uncertainties and moderating domestic growth.
"After suffering from the COVID pandemic, the Indian economy faced significant challenges. Subsequently, it demonstrated a robust recovery, but the pent-up demand that drove Indian economic growth in recent years is now coming to an end.
"And so, the Indian economy is returning to the trajectory it followed pre-COVID, and it now needs a boost in public spending," he said.
Sitharaman, in last year’s budget, announced that the government would allocate ₹11.11 lakh crore for capital expenditure in 2024-25 and introduce viability gap funding to spur private investment in infrastructure.
India's second-quarter (July-September) GDP growth slumped to a seven-quarter low of 5.4 per cent.
Responding to a question on the weakening rupee, Kumar said the issue is less about rupee depreciation and more about the strengthening of the dollar.
According to him, various currencies are weakening against the dollar because of the dollar's increasing strength, which is largely driven by the strong performance of the American economy and expectations that the new administration led by Donald Trump will further strengthen the US economy.
"This weakness of the rupee is largely due to the strengthening of the dollar, which is also causing outflows of FII positions from India. When there is too much demand for dollars, the rupee tends to depreciate," Kumar observed.
He added that, given other currencies are also depreciating, the rupee’s relative position must be considered.
"My feeling is that the rupee, in real terms, is still somewhat appreciated and overvalued," Kumar said, adding that maintaining the rupee at a more competitive exchange rate, which is not overvalued, is healthy for exports and India's manufacturing efforts.
The rupee is currently hovering around 86.60 against the greenback. It recently touched an all-time closing low of 86.70 on 13 January.
Replying to a question on the resurgence of giveaways, also referred to as freebies, Kumar said this is a concern for long-term development.
"Resources that could have been used for development purposes – building infrastructure and closing gaps in infrastructure, particularly in lagging regions or states – are being promised as handouts.
"This is not a healthy trend and should be curbed, as people need to be aware of where the money will come from," he said.
Emphasising the importance of voter awareness, Kumar noted that what is promised as freebies often costs the public in other ways, such as delayed development.
"Do you want the long-term development prospects of your state or constituency, or do you prefer short-term gains in the form of a freebie?" he asked.
"I hope people will realise sooner rather than later that this is a false promise, as freebies ultimately hurt them more than anyone else," he concluded.
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