Ex-RBI Governor on Budget 2025: 'NDA 3.0 Should Focus on Long-Term Reforms'

In light of the upcoming Union Budget presentation by Finance Minister Nirmala Sitharaman on February 1, D Subbarao, the former Governor of the Reserve Bank of India (RBI), has vocalized a strong recommendation for the NDA 3.0 government. He urges the administration to harness its robust political mandate to initiate difficult but necessary structural reforms. Subbarao's advice comes at a pivotal time when India faces both internal economic slowdown and external uncertainties. His emphasis is on propelling the nation towards a trajectory of high growth and equitable wealth distribution, aiming to significantly reduce inequality across the board.

Subbarao’s insights extend into specific strategies for economic enhancement and job creation, focusing particularly on the bottom half of India's population. He argues that fostering job opportunities is the most effective way to elevate consumption levels among this segment, thereby driving production, employment, and an overall increase in growth rates. This approach is not only aimed at boosting the domestic economy but also at making India a more appealing option for investors seeking alternatives amidst the US-China trade tensions.

He further advocates for the strengthening of the MSME sector and an emphasis on labor-intensive exports to bolster employment. Regarding the depreciating rupee, Subbarao counsels allowing it to align with economic fundamentals, supporting the notion that a weaker rupee could improve India's export competitiveness and facilitate growth, albeit with a watchful eye on inflation.

Addressing the contentious issue of political freebies, Subbarao criticizes their growing culture due to the significant fiscal strain they impose. He calls for a constructive dialogue among central and state governments, as well as political parties, to formulate a code of conduct regarding such expenditures. This discussion is crucial for maintaining fiscal discipline while navigating the complexities of political incentives.

Moreover, Subbarao raises concerns over the Economic Survey 2023-24’s suggestion to disregard food inflation when setting benchmark interest rates. He underlines the critical role of food prices in shaping inflation expectations and warns against the credibility risks faced by the RBI's Monetary Policy Committee should it exclude food inflation from its policy considerations. Given the substantial influence of food on consumer price inflation, he stresses the importance of including it in rate-setting discussions to manage inflation effectively.