Former RBI official R Gandhi backs Budget 2026's medium-term vision, 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 highlighted that the budget's most distinguishing feature is its sustained medium to long-term outlook, particularly in fiscal policy and growth strategy aligned with the government's Viksit Bharat 2047 vision.

Tax stability key to business confidence

Emphasizing the importance of policy consistency, Gandhi noted that the government's decision to maintain tax rates unchanged this year—following significant support measures for individuals and businesses last year—sends a powerful message about certainty and stability.


"Every year if you are dealing with tax whether it is direct tax or indirect tax, that is not good," Gandhi explained. "This approach ensures that everybody will not stop looking at one year only but focus on medium to long term."

Private investment puzzle: Capacity utilization holds key

Addressing concerns about lacklustre private capital formation despite strong government capex push, Gandhi pointed to capacity utilization as the critical factor. Bank surveys consistently show capacity utilization hovering around 75%, indicating industries still have room to grow without expanding facilities.

"Businesses take cue from how much of the 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 service sector approaching 60% of GDP. Since services are less capital-intensive than manufacturing, this transformation naturally moderates overall capital formation requirements—a phenomenon he suggests economists should study more deeply.

STT hike: Curbing speculation, not price discovery

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

"SEBI consistently brought out data showing large-scale damage in terms of individual exposure to F&O," he noted, explaining that speculative expectations were luring investors into potentially harmful positions.

However, Gandhi dismissed concerns about permanent market damage, asserting that the transaction-oriented hike would reduce trading volumes without disrupting price discovery mechanisms. "This is not going to be the decider in terms of price discovery," he emphasized, describing any market corrections as temporary adjustments aligned with the policy's 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, long-term investment climate focused on India's 2047 development goals.