Union Budget 2026 needs to focus on long-term vision to make Indian economy more resilient: Raghuram Rajan

Former Reserve Bank of India (RBI) Governor Raghuram Rajan on Wednesday (January 28, 2026) suggested that the upcoming Budget should be integrated with a longer-term vision to make India’s economy more resilient and independent as it accelerates growth as the world goes through an ‘extremely dangerous period’.

In an interview with PTI VideosMr Rajan said earlier India had five-year plans but even then the country’s budget was not well integrated with them.

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“I think this (Union Budget 2026-27) needs to be integrated with a longer-term vision. How do we become more resilient, more independent as an economy, but also grow fast, which everyone else wants to be friends with India, which requires quite a lot of work, and I hope Finance Minister Nirmala Sitharaman’s next Budget will take us there,” he said.

Ms. Sitharaman will present the Union Budget on February 1, 2026, which is expected to include reform measures to boost economic growth amid the volatile geopolitical situation.

Mr Rajan said that although ‘we see many positive opportunities from the massive investment in Artificial Intelligence (AI),’ this is an ‘extremely dangerous time’ for both the global and Indian economy.

“But there’s also a danger of becoming too dependent on assets that can squeeze us and make us vulnerable because we don’t have a rich, rich natural market nearby that we can supply to outside of our own market,” he said.

Mr. Rajan, currently the Katherine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth, emphasized that he understands that the upcoming Budget may reduce some of the tariff rates that prevent India from being well integrated into the supply chain.

“And of course States are also helping by creating investment-friendly policies. But we need more than that,” he said.

Stating that India is the fastest growing major economy and this should be celebrated, Mr. Rajan said, “We need to build as many relationships as possible, including with our neighbors Bangladesh, Sri Lanka and Nepal.”

Asked if trade tensions with the US will escalate further, then what mix of domestic reform and external positioning will help India absorb this stockpile, he said the most important aspect for India is to shut down the outside for a while because there will be a lot of noise that will arise and instead there needs to be introspection on what it needs to do to raise the growth rate.

“We did a series of very big reforms from the 1990s to the early 2000s, and then we didn’t reform very much for a while. I think it’s time to restart that process,” he said.

Observing that the Narendra Modi government has recently implemented reforms, Mr. Rajan said it is time to focus more on what needs to be done to contribute perhaps a few percentage points to India’s economic growth.

“I think what we have now is an opportunity created by the uncertainties in the policies of the two major superpowers, an opportunity to reinsert ourselves into global supply chains,” he said.

Mr. Rajan pointed out that India is naturally not part of any global supply chain because it is not close to any major economy except China, with which it has a border dispute.

“It will be important for India to diversify the supply chains it has access to, including China, but also, more importantly, to move forward with Europe, Australia, Canada, the Middle East and East Asian countries,” he said.

Mr. Rajan said that given all the uncertainties created by the superpowers, India has a new opportunity to catch the bus it may have missed.

“It’s not just manufacturing, it’s service and all kinds of services. Can we start thinking about how we can do that?” he asked.

According to him, if India can deliver a set of reforms, it will not only attract more attention and foreign direct investment but also integrate into global supply chains.

US President Donald Trump’s imposition of 50 percent customs duty on India, including 25 percent on Russian oil purchases, led to tension in bilateral relations between the two countries.

Asked whether India could aim to grow at 8-9 per cent sustainably like China and East Asian countries, which have grown at higher rates for over 30 years, Mr Rajan said India did not need to grow at the complex pace at which China was growing.

“Some of this was unsustainable and we’re seeing the problems that the Chinese real estate market is facing now and, you know, it’s going to take a few years for that to recover,” he said. Mr. Rajan observes that even in India, some infrastructure construction has become alarming.

“Every city seems to want a subway, but not every city has the ability to put subway stations in the right place, and some of that investment may be difficult to recoup over time, and frankly we shouldn’t be building public infrastructure that people can’t use,” he opined.

Mr. Rajan emphasized that India must be careful about creating temporary and unsustainable growth. “This includes housing; even though we are a poor country with large numbers of people without housing, not all housing is being used effectively and so we need to be careful about sudden growth.”

It was published – 28 January 2026 12:12 IST