Former RBI official R Gandhi backs Budget 2026’s medium-term view and defends STT hike on F&O trading

R Gandhi, former deputy governor of the Reserve Bank of India, has strongly endorsed the Union Budget 2026’s focus on medium-term economic planning, calling it a crucial shift from annual policy tinkering that undermines investor confidence.In an interview with ET Now, Gandhi emphasized that the most distinguishing feature of the budget is its sustainable medium- to long-term prospects, especially in terms of fiscal policy and growth strategy that are in line with the government’s Viksit Bharat 2047 vision.

Tax stability is the key to business confidence

Gandhi stressed the importance of policy consistency, noting that the government’s decision to leave tax rates unchanged this year – after significant support measures for individuals and businesses last year – sends a strong message about security and stability.

“If you have to deal with taxes every year, whether it is direct taxes or indirect taxes, it is not good,” Gandhi explained. “This approach ensures that everyone doesn’t stop looking at just one year, but focuses on the medium to long term.”

Private investment puzzle: capacity utilization is crucial

Responding to concerns about lackluster private capital formation despite strong pressure on government capital investment, Gandhi pointed to capacity utilization as the critical factor. Bank surveys consistently show occupancy rates hovering around 75%, indicating that industries still have room to grow without expanding facilities.

“Companies are basing their decision on the proportion of installed capacity they are actually using,” he said, adding that companies have become cash-rich and green shoots of increased investment are visible.
Gandhi also highlighted a structural shift in the economy, with the services sector approaching 60% of GDP. Because services are less capital intensive than manufacturing, this transformation naturally moderates the overall requirements for capital formation – a phenomenon he believes economists should study in more depth.

STT Hike: Curb Speculation, Not Price Discovery

On the controversial hike in Securities Transaction Tax (STT) on futures and options trading, Gandhi defended the move as a necessary macro-prudential measure to protect retail investors from speculative excesses.

“SEBI consistently released data showing large-scale harm in terms of individual exposure to F&O,” he noted, explaining that speculative expectations lured investors into potentially damaging positions. Gandhi, however, dismissed concerns about permanent market damage, claiming that the transaction-oriented surge would reduce trading volumes without disrupting price discovery mechanisms. “This will not be decisive when it comes to price formation,” he stressed, describing any market corrections as temporary adjustments in line with the policy objectives.

The former central banker’s assessment provides significant support for the government’s fiscal approach, suggesting that short-term market volatility is a reasonable trade-off for building a more sustainable, longer-term investment environment focused on India’s 2047 development goals.