Finance Minister Nirmala Sitharaman will present the Union Budget for 2026-27 on February 1.”For boosting the manufacturing-led growth, the Union Budget 2026-17 should consider some policy incentives for promoting in-house R&D activity of Indian companies, given its role in strengthening their productivity and competitiveness,” Kumar told PTI in an interview.
He said Research, Development and Innovation (RDI) and Anusandhan National Research Foundation (ANRF) are important measures adopted in recent times.
“But they need to be complemented by incentives for corporate R&D activity,” he said, adding that restoring the 200 per cent weighted tax deduction for R&D expenditure could be one such policy.
According to Kumar, another suggestion would be to create a new institutional architecture for term lending for manufacturing.”Commercial banks face an asset-liability mismatch in providing long-term loans for the industry.”A new specialised development financing institution for manufacturing is the need of the hour,” the eminent economist said.
On depreciating Indian currency, Kumar said the rupee has depreciated due to a combination of factors like withdrawal of foreign portfolio investments, concerns about the Trump tariffs and uncertainty about their impact on India’s exports.
“However, the depreciation has also helped to bring down the extent of appreciation of the exchange rate in real terms, which is helpful for India’s exports and for the manufacturing sector. So, one need not be overly concerned about it,” he said.
The rupee is hovering at 91 against the US dollar.
Asked if trade tensions with the US escalate further, what mix of domestic reforms and external positioning would best help India absorb the shock, Kumar said there is a lot of anxiety about the impact of the US President Donald Trump tariffs of 25+25 per cent, especially on the exports of labour-intensive goods, given the fact that the US is a major market for India’s exports of labour-intensive goods like textiles and garments, leather goods, gems and jewellery, shrimp, and other food products.
Noting that the negotiations for a bilateral trade agreement with the US have been resumed, and hopefully, they will succeed in bringing down the US tariffs on Indian exports to more manageable levels, he said India also needs to diversify markets for these goods to other countries.
In that context, the recently concluded UK-India FTA is an important development, the eminent economist added.
The negotiations of the India-European Union Free Trade Agreement(FTAs) are expected to be concluded soon.
“Enhancing the domestic value addition in consumer goods exports through building the globally known Indian brands and supply chains through overseas direct investments (ODI) and acquisitions of foreign retail chains would also be important,” he said.
In August, Trump slapped a 50 per cent tariff on India, including a 25 per cent additional duty for India’s purchase of Russian crude oil.
If India comes under the fresh tariff regime, then duties on Indian goods are expected to increase beyond 50 per cent.
Responding to a question on the production-linked incentive (PLI) scheme for manufacturing, Kumar said it has been a huge success in some sectors like mobile phone assembling, but not in others.
While noting that each sector has its specificities, he said PLI may not be adequate for some sectors and may need to be complemented by other measures.
“Hence, a sector-by-sector review and evaluation would be helpful to determine what is needed for a particular sector,” Kumar said.
On India’s macroeconomic situation, he said the Indian economy can certainly sustain 8-9 per cent growth if external conditions are more benign than they are now.
“In the absence of a benign external environment, domestic consumption and investments will need to be stepped up to accelerate the growth rate from around 7.5 per cent to 8.5 per cent,” Kumar said.
The Indian economy in 2025-26 has displayed a lot of dynamism and resilience in the face of a very turbulent global context.
“Considering that 8 per cent was achieved in the H1 of the current financial year, my estimate for the growth rate of India for 2025-26 is around 7.5 per cent,” Kumar said, adding that India remains the fastest-growing major economy and emerges as the fourth-largest in the world.
Underpinned by strong rural consumption and investment growth, the GDP growth in Q2 FY2026 at a robust 8.2 per cent exceeded expectations.
It was impressive in the context of a challenging and uncertain external environment.
