Budget for the fiscal year 2025-26 should prioritize capital expenditures and infrastructure investments
Budget for the fiscal year 2025-26: In an interview on Sunday, Nagesh Kumar, a member of the RBI Monetary Policy Committee, emphasized the importance of Finance Minister Nirmala Sitharaman focusing on capital expenditure and infrastructure spending in the Budget for the financial year 2025-26. He highlighted that these measures are crucial for boosting economic growth and ensuring its sustainability.
Kumar, an eminent economist, stressed the significance of maintaining and expanding infrastructure expenditure to establish a more robust economic growth trajectory for India. He noted that amidst a slight economic slowdown observed in the second quarter, there is a pressing need to enhance growth and make it more resilient and sustainable.
He suggested that Sitharaman should continue the momentum she initiated two years ago by prioritizing capital expenditure, infrastructure spending, and increasing them to healthy levels in Budget 2025-26. The upcoming Union Budget, scheduled to be presented on February 1, comes at a time of global economic uncertainties and moderating domestic growth.
Following the impact of the COVID-19 pandemic, the Indian economy experienced significant challenges but demonstrated a strong recovery. However, the pent-up demand that fueled economic growth is now waning, returning the Indian economy to pre-COVID levels. Kumar emphasized the importance of boosting public spending to support economic growth.
In the previous year’s budget, Sitharaman announced a capital expenditure of Rs 11.11 lakh crore for 2024-25 and introduced viability gap funding to stimulate private investment in infrastructure. India’s GDP growth in the second quarter (July-September) dropped to a seven-quarter low of 5.4 percent.
Regarding the weakening of the rupee, Kumar explained that it is not just about rupee depreciation but also the strengthening of the dollar.
According to his analysis, various currencies are weakening in comparison to the dollar due to the dollar’s increasing strength. This trend is primarily driven by the robust performance of the American economy and the anticipation of positive economic policies under the new administration led by Donald Trump.
The depreciation of the rupee can be attributed to the strengthening dollar, resulting in Foreign Institutional Investors (FII) withdrawing their positions from India. When there is a high demand for dollars, the rupee tends to lose value, as observed by Kumar.
Kumar believes that while other currencies are also depreciating, it is essential to consider the relative value of the rupee. He suggests that the rupee may still be slightly overvalued in real terms, emphasizing the importance of managing the exchange rate competitively to boost exports and support India’s manufacturing sector.
Currently, the rupee is trading around 86.60 against the dollar, having reached an all-time low of 86.70 on January 13.
In response to concerns about the resurgence of giveaways or freebies, Kumar expressed apprehension about the long-term impact on development. He highlighted that resources allocated for giveaways could have been utilized for infrastructure development and addressing regional disparities. Kumar stressed the need to educate voters about the true cost of freebies, as they ultimately impact development initiatives.
He questioned whether constituents prefer short-term gains from freebies or long-term development prospects for their state or constituency. Kumar emphasized the importance of informed decision-making to ensure sustainable development.
“I hope people will realize sooner rather than later that the promise of freebies is false, as it ultimately harms them more than anyone,” he stated.
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