Provide Incentive in Budget for R&D; Create Specialized Financial Institution for Long-Term Funding: Insights from MPC Member Nagesh Kumar
Agencies
Nagesh Kumar on Budget Strategies for R&D
New Delhi: According to Nagesh Kumar, a member of the RBI Monetary Policy Committee (MPC), the upcoming Union Budget should prioritize policy incentives designed to bolster Research and Development (R&D) activities. He emphasizes the need for a dedicated institutional fund to provide long-term capital to various industries.
– Budget Presentation: Finance Minister Nirmala Sitharaman is set to unveil the Union Budget for 2026-27 on February 1.
– Growth Through R&D: Kumar asserts that to enhance manufacturing-led growth, the government must consider policy incentives that encourage in-house R&D among Indian companies. He underscores R&D’s crucial role in improving productivity and competitiveness.
– Research, Development and Innovation (RDI) and the Anusandhan National Research Foundation (ANRF) are promising measures, but they require further support through corporate R&D incentives, Kumar mentioned in an interview with PTI.
– Tax Incentives: He advocates for reinstating a 200% weighted tax deduction for R&D expenditures as a potential policy move.
Institutional Architecture for Long-Term Lending
Kumar suggests that the creation of a specialized development financing institution for manufacturing is essential. He points out the existing asset-liability mismatches faced by commercial banks when offering long-term loans, making a new institutional framework a necessity.
– A specialized institution dedicated to long-term capital for the manufacturing sector is the need of the hour, he stated.
Impact of Currency Depreciation on Exports
Regarding the depreciating Indian rupee, Kumar explains that various factors have influenced this trend, including the withdrawal of foreign portfolio investments and trade tensions stemming from U.S. tariffs.
– Current Exchange Rate: Presently, the rupee is hovering around 91 against the U.S. dollar. Kumar notes that while depreciation does raise concerns, it has also curbed excessive appreciation of the exchange rate, which can benefit exports.
– Trade Relations: Kumar highlights anxiety surrounding the tariffs imposed by the U.S., particularly on labor-intensive goods like textiles, garments, and food products. He also expresses optimism regarding ongoing negotiations for a bilateral trade agreement with the U.S., which could result in reduced tariffs.
Diversification and Value Addition in Exports
Kumar emphasizes the necessity for India to diversify its export markets, particularly for labor-intensive goods, to counteract potential U.S. tariff impacts. He cites the recent UK-India Free Trade Agreement (FTA) as a significant step in this direction, and anticipates the conclusion of the India-European Union FTA negotiations.
– Enhancing domestic value addition in consumer goods exports, by building strong Indian brands and supply chains, is vital, he highlights.
Assessment of the PLI Scheme
Concerning the Production-Linked Incentive (PLI) scheme, Kumar acknowledges its success in sectors like mobile phone assembly but points out that it hasn’t performed as well in others. He suggests a sector-specific review to assess further support measures that may be necessary.
Macroeconomic Outlook
Kumar remains optimistic about India’s economic growth, forecasting a potential annual growth rate of 8-9% if external conditions improve. He stresses the importance of boosting domestic consumption and investment to maintain momentum in the absence of favorable global conditions.
– Despite challenges, the Indian economy has shown resilience and dynamism, achieving around 7.5% growth, he stated, reinforcing India’s status as the fastest-growing major economy.
In conclusion, Nagesh Kumar’s proposals for incentivizing R&D and establishing specialized financial institutions are significant for fostering long-term economic growth in India. The upcoming Union Budget presents a crucial opportunity to implement these strategies, ultimately enhancing India’s competitiveness on the global stage.