Former Reserve Bank of India (RBI) Governor D Subbarao has urged the NDA 3.0 government to use its strong political position to introduce difficult but necessary reforms in the upcoming Union Budget 2025-26. Scheduled to be presented on February 1 by Finance Minister Nirmala Sitharaman, this budget is expected to address global economic uncertainties and slowing domestic growth.
Subbarao emphasized that the primary goal of the budget should be to set the Indian economy on a path of sustained high growth. However, he pointed out that growth alone is not sufficient. “We need to ensure that the benefits of growth are shared equally, reducing inequality. The huge consumption potential of the bottom half of India’s population is its biggest growth driver,” he stated.
He highlighted the importance of job creation as the most effective way to boost consumption. “If the lower-income groups earn more, they will spend more, which will drive production, create more jobs, and ultimately fuel economic growth,” he added.
On global opportunities, Subbarao noted that the ongoing US-China trade tensions could make India an attractive destination for investors. “We must act swiftly to make India a welcoming place for investments,” he said.
Subbarao also stressed the need to focus on the MSME sector and labor-intensive exports to generate employment. Speaking on the weakening rupee, he suggested that allowing the rupee to find its natural level could boost export competitiveness, even if it might cause short-term inflation.
He also criticized the rising trend of competitive populism, where governments offer freebies to secure votes. “While transfer payments to the needy are essential, unchecked freebies burden public finances and harm long-term growth,” he explained. Subbarao recommended initiating a dialogue with states and political parties to establish a code of conduct on such giveaways.
Lastly, he disagreed with the suggestion in the Economic Survey 2023-24 to exclude food inflation from interest rate decisions. “Food prices are central to inflation expectations in India, and excluding them would undermine the credibility of the RBI’s monetary policy,” he concluded.