“Let me be clear that I am not among those who think that the budget is such a huge weapon that by adjusting this and that I can change the rate of growth and decide which sector will prosper and which will not. I do not believe that the budget is a strong enough instrument to do all that,” Aiyar said.He pointed out that India’s current strong macro position – characterized by robust growth and low inflation – has not been driven by short-term fiscal adjustments, but by years of structural reforms.
“If we have arrived at this Goldilocks economy, this wonderful situation of 8% growth and less than 2% inflation, it has not come about because of some minor budget error. This is a consequence of reforms at various levels moving forward, strengthening the economy and increasing productivity,” he noted.
While acknowledging that the growth target is ambitious, Aiyar stressed that India still remains exposed to global economic conditions given the country’s dependence on trade.
“If you look at all the possible problems that are happening in the rest of the world, if you see the IMF and the World Bank saying that the whole world is going to slow down, and India is a country where the total of imports and exports is about 40% of GDP, we are significantly dependent on the rest of the world. We are not isolated from what is going on, and things will slow down,” he said. Despite these risks, Aiyar expressed confidence in India’s resilience, citing consistent improved performance.
“We have consistently exceeded expectations quarter after quarter. So there is something fundamental about all the reforms that have taken place over the last 10 to 15 years that has strengthened us so that we have done better even under difficult conditions,” he said, adding that the 6.8% to 7.2% growth margin is achievable unless there is a major global shock.
On what the upcoming budget should prioritize, Aiyar advocated restraint and a continued focus on fiscal consolidation rather than new stimulus measures.
“As far as what the budget should do, don’t try anything exciting. You have to continue on the path of fiscal consolidation. If the fiscal deficit comes to 4.2, remember that if the fiscal deficit continues to decline, that is not a stimulus. It is consolidation, in a sense an anti-stimulus,” he said.
He warned against expanding subsidies or aggressively expanding Production-Linked Incentive (PLI) schemes.
“We should not try different things like huge additional subsidies for that sector or expanding PLI to five more sectors. I don’t think we should go in those kinds of directions,” he added.
Instead, Aiyar emphasized that cutting red tape and deregulation must remain a priority, citing data that underlines the scale of compliance burdens.
“Last year, Nirmala Sitharaman set up a committee to look into deregulation. All the reports showed a very large number of regulations per sector. But even then you had this TeamLease report which showed that for a standalone solar farm you needed 2,735 compliances per year. You have to ask yourself: what is this mind-boggling amount of red tape? So cut, cut, cut, cut, cut,” he said.
He urged the Minister of Finance to intensify efforts in this area while avoiding excessive dependence on subsidies.
“Besides, please don’t be adventurous in opening new areas for PLI or increasing PLI subsidies too much. What is happening now is enough. We have achieved 8% growth in the first half. It is such a good performance that we cannot pretend that by giving more subsidies you can accelerate anything significantly,” Aiyar concluded.
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