Budget Needs To Focus On Longer-Term Vision To Make Indian Economy More Resilient: Rajan

 

 

Former RBI Governor Raghuram Rajan on Wednesday suggested that the upcoming Budget should be integrated with a longer-term vision to make the Indian economy more resilient and independent, while accelerating growth, as the world is passing through an 'extremely dangerous time'. In an interview with PTI Videos, Rajan said that earlier, India had five-year plans, but even then, the country's budget was not well integrated with them.

"I think it (Union Budget for 2026-27) 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, that requires a fair amount of work, and I am hopeful that Finance Minister Nirmala Sitharaman's next budget will take us there," he said.

 

Sitharaman will present the Union Budget on February 1, expected to include reform measures to shore up economic growth amid a volatile geopolitical situation. Rajan said this is an 'extremely dangerous time' for both the global and the Indian economy, even as 'we are seeing lots of positive opportunities from the tremendous investment in artificial intelligence (AI)'.

"But there is also a lot of danger from becoming too reliant on entities that can squeeze us and make us vulnerable because we do not have a natural market which is nearby, which is rich, that we can supply to other than our own," he said.

 

Rajan, currently the Katherine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth, emphasised that he understands the forthcoming budget may cut some tariff rates that keep India from being well integrated into the supply chain.

"And of course, the states are also helping by creating policies that are friendly towards investment. But we need more of that," he said.

 

While noting that India is the fastest-growing large economy, and that needs to be celebrated, Rajan said, "We also need to make as many sorts of relationships as we can, including with our neighbours, Bangladesh, Sri Lanka, Nepal."

Asked if trade tensions with the US escalate further, then what mix of domestic reform and external positioning would help India absorb this stock, he said the most important aspect for India is to shut out the outside for a while, because there is a lot of noise that will be created, and instead introspect as to what it needs to do to up the rate of growth.

"We had a whole range of very big reforms through the 1990s into the early 2000s, then for a while we did not have very much. I think it is time to start that process again," he said. Observing that the Narendra Modi government has recently implemented reforms, Rajan said it is time to focus more on what it will take to add, maybe, a couple of percentage points to India's economic growth.