Budget 2025-26: D Subbarao presses NDA 3.0 for essential structural changes

The NDA 3.0 government must use its enormous political capital to implement 'politically difficult' structural reforms in the upcoming budget to promote growth and job creation, former RBI Governor D Subbarao said on Thursday. The Union Budget for 2025-26, to be presented by Finance Minister Nirmala Sitharaman on February 1, comes amid global economic uncertainties and moderating domestic growth.

Objective of the Budget

"This is the first full budget of the NDA-III government and it must use its enormous political capital to implement politically difficult structural reforms," Subbarao told PTI in an interview. Further, he said that the primary objective of the budget is to put the economy on a sustainable high-growth trajectory. "But mere growth will not do. We need to ensure that the benefits of growth are widely shared which is to say that we need to focus on reducing inequality," Subbarao added.

Consumption and Job Creation

According to him, the huge consumption base of the bottom half of India's population is its biggest growth driver. "The only sustainable way to raise consumption of the bottom half is through job creation," Subbarao said, adding that if they earn more, they will spend more which will in turn spur more production, more jobs and higher growth.

Focus on Investment Climate

The former RBI Governor noted that if the US-China trade war is accentuated, potential investors will be looking for alternate destinations, and "we must get our act together to make investing in India a happy experience for them." He emphasised the need to focus on the MSME sector and labour-intensive exports to boost job creation.

Currency Valuation Concerns

Responding to a question on the weakening of the rupee, Subbarao said that he believes there is a strong case for the domestic currency to find its level consistent with economic fundamentals. "The rupee is overvalued today in real terms which is hurting our export competitiveness," he said, adding that allowing the rupee to weaken will help exports and thereby help growth.

Inflationary Effects of Currency Weakening

For sure, Subbarao said it may be inflationary but the coefficients suggest that the net effect on balance will be positive. "Moreover Trump's threatened policies will likely keep the dollar strong over an extended period, and trying to hold up the rupee in such circumstances will be self-defeating," he noted.

According to him, the RBI's stated policy is that it does not target a specific exchange rate but intervenes in the market to check 'excess' volatility. "There is a strong case for the RBI to walk the talk," Subbarao emphasised.

Culture of Freebies and Fiscal Discipline

In response to a question about the resurgence of giveaways, also known as freebies, he said the culture of freebies is on the rise, as both the central and state governments, as well as all political parties, are equally culpable. "It is not clear if this competitive populism pays off in terms of votes since all political parties are in the game, but it casts a huge fiscal burden especially because these so-called freebies are being funded by borrowings," Subbarao said.

Need for Code of Conduct on Freebies

While noting that in a poor country where millions struggle to make a decent livelihood, transfer payments to the most vulnerable groups are of course necessary, indeed even mandatory, he said but competitive populism is fiscally perilous, possibly even inimical to the country's long-term growth and welfare. "Some time ago, the prime minister decried the revdi culture but had not followed up on that," Subbarao said, adding that given the pressure of vote bank politics, no single political party will voluntarily adopt restraint.

Suggestions for Fiscal Responsibility

He said the centre needs to take the initiative. "To bring some discipline into this, it will be great if the finance minister takes the initiative and announces in the budget that the government will initiate a dialogue with state governments and all political parties to agree on a code of conduct on freebies," Subbarao suggested.

Economic Survey Insights on Inflation Targeting

Responding to a question on suggestions made in the Economic Survey 2023-24 for excluding food inflation while setting benchmark interest rates, he said he thinks that will be inappropriate for Indian conditions. "First, food is a large component of the Indian consumption basket. Food prices are what people experience in the market."

(Except for the headline, nothing has been changed by All India News Network in the PTI copy.)