Former
Reserve Bank of India governor
Raghuram Rajan on Wednesday said the upcoming Union Budget should be anchored in a longer-term vision aimed at making the Indian economy more resilient and independent, even as it accelerates growth, warning that the world is passing through an “extremely dangerous time,” according to PTI.
In an interview with PTI Videos, Rajan said India needs to move beyond a year-to-year fiscal exercise and integrate the Budget for 2026–27 with a broader strategic roadmap. While India earlier had five-year plans, he noted that budgets were not always well aligned with those longer-term goals.
“I think it should be integrated with a longer-term vision. How do we become more resilient, more independent as an economy, but also fast growing, so that everybody else wants to be friends with India,” Rajan said, adding that such an approach would require sustained effort. He said he was hopeful that Finance Minister Nirmala Sitharaman’s forthcoming Budget, to be presented on February 1, would move in that direction.
Rajan said the global and Indian economies are facing heightened risks, even as new opportunities emerge from large investments in artificial intelligence. “We are seeing lots of positive opportunities from the tremendous investment in AI,” he said, but cautioned that excessive dependence on a narrow set of external partners could leave India vulnerable. He pointed out that India lacks a nearby, wealthy natural market other than its own, underscoring the need for careful economic positioning.
The former RBI governor, who is currently the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, said he understood that the Budget may involve cutting certain tariff rates that currently hinder India’s integration into global supply chains. He added that while states have begun adopting more investment-friendly policies, more needs to be done.
While describing India as the fastest-growing large economy—a fact he said should be celebrated—Rajan stressed the importance of building a wider set of economic relationships. “We also need to make as many sorts of relationships as we can, including with our neighbours, Bangladesh, Sri Lanka, Nepal,” he said.
Asked how India should respond if trade tensions with the United States escalate further, Rajan said the priority should be to temporarily tune out external noise and focus inward on reforms that can lift the growth trajectory. He recalled that India undertook a series of major reforms in the 1990s and early 2000s, followed by a period of relative slowdown on that front.
“I think it is time to start that process again,” he said, while acknowledging that the Narendra Modi government has implemented several reforms in recent years. According to Rajan, the focus now should be on identifying measures that can add two percentage points or more to India’s growth rate.
Rajan said the current global uncertainty, driven in part by policy shifts among major powers, has created an opportunity for India to reinsert itself into global supply chains. However, he noted that India is not naturally embedded in such chains, given its geography and the fact that its only large neighbour is China, with which it has a border dispute.
“It would be important for India going forward to diversify across the supply chains that it has access to, including with China, but also importantly, with Europe, with Australia, with Canada, with the Middle East, as also with the East Asian countries,” he said.
He added that India may have missed earlier opportunities but now has a fresh chance to catch up. “It is not just manufacturing, it is services, and it is all kinds of services,” Rajan said, asking whether India can start thinking more systematically about expanding its presence in these areas. If accompanied by credible reforms, he said, this could attract more foreign direct investment and deepen India’s integration with global supply chains.
The comments come against the backdrop of strained India–US trade ties, after US President Donald Trump imposed 50% tariffs on India, including a 25% levy linked to India’s purchases of Russian oil.
On whether India should aspire to sustain growth rates of 8–9% over long periods, as China and some East Asian economies did, Rajan said India need not follow the same “helter-skelter” path. He argued that some of China’s rapid growth was unsustainable, citing ongoing problems in its property market.
Rajan also flagged concerns about the quality of growth in India, particularly in infrastructure. “Every city seems to want a metro, but not every city has the ability to put metro stations in the right place,” he said, warning that some investments may prove difficult to recover over time. He stressed that public infrastructure should be built only where it can be effectively used.
Emphasising the need for sustainable growth, Rajan said policymakers must be cautious about investments that generate only short-term momentum. This includes housing, he said, noting that not all housing projects, even in a country with significant unmet demand, can be utilised effectively. “We have to be careful about helter-skelter growth,” he said.