Provide Incentive in Budget for R&D: Create Specialized Financial Institution for Long-Term Funding
Agencies
MPC Member Nagesh Kumar’s Insights
New Delhi: Nagesh Kumar, a member of the RBI Monetary Policy Committee, emphasized the necessity for the government to introduce policy incentives for Research and Development (R&D) activities in the upcoming Budget. He advocates for the establishment of a specialized financial institution dedicated to providing long-term funding for the industry.
– Budget Presentation: Finance Minister Nirmala Sitharaman is set to unveil the Union Budget for 2026-27 on February 1.
– R&D Incentives for Growth: Kumar stated, “For stimulating manufacturing-led growth, the Union Budget 2026-27 should offer policy incentives to enhance in-house R&D activities conducted by Indian companies, as these are crucial for increasing their productivity and competitiveness.” He referenced recent initiatives like the Research, Development, and Innovation (RDI) program and the Anusandhan National Research Foundation (ANRF), while stressing that they need to be accompanied by incentives for corporate R&D. A key proposal includes reinstating the 200 percent weighted tax deduction for R&D expenditures.
– Need for Specialized Financing: Kumar further highlighted the challenges commercial banks face regarding asset-liability mismatches when providing long-term loans for the industry. He called for a new development financing institution tailored specifically for the manufacturing sector.
– Impact of Currency Depreciation: On the topic of the depreciating Indian rupee, he noted several factors contributing to the decline, such as:
– Withdrawal of foreign portfolio investments
– Concerns over U.S. tariffs
– Uncertainty regarding the potential effects on India’s exports
He reassured that the depreciation of the rupee has, in some ways, mitigated the excessive appreciation of the exchange rate in real terms, benefiting exports and the manufacturing sector.
– Trade Tensions with the U.S.: Kumar expressed concerns over the ramifications of heightened trade tensions with the United States, particularly regarding tariffs on India’s exports of labor-intensive goods. He observed that negotiations for a bilateral trade agreement with the U.S. have resumed, with hopes of reducing tariffs to more manageable levels. Additionally, he emphasized the necessity for India to diversify its export markets and highlighted the significance of the recently concluded UK-India Free Trade Agreement (FTA).
– Sector-Specific Production Incentives: Addressing the Production-Linked Incentive (PLI) scheme, Kumar acknowledged its success in certain sectors like mobile phone assembly but indicated that it might not suffice for others. He suggested conducting a sector-by-sector evaluation to determine tailored support measures.
– Macroeconomic Outlook: He portrayed a vibrant picture of India’s macroeconomic potential, stating, “The Indian economy can sustain a growth of 8-9 percent, provided external conditions improve.” He underscored the importance of boosting domestic consumption and investments to elevate growth rates, projecting a GDP growth rate of around 7.5 percent for the 2025-26 fiscal year.
In conclusion, Nagesh Kumar’s insights underline the critical need for incentives in the Budget to foster R&D and establish specialized financial institutions. These initiatives are vital for bolstering India’s manufacturing sector, enhancing its global competitiveness, and ensuring sustainable economic growth amidst challenging external conditions.