Union Budget 2026: World in 'extremely dangerous time,' Raghuram Rajan warns India must build resilience

Former RBI Governor Raghuram Rajan on Wednesday said India’s upcoming Union Budget should be anchored in a long-term vision to make the economy stronger, more self-reliant and faster-growing, warning that the world is passing through “an extremely dangerous time”.

In an interview with PTI Videos, Rajan said that while India earlier had five-year plans, budgets were never fully aligned 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.

The Finance Minister is expected to present the Union Budget on February 1, with measures aimed at boosting economic growth amid global uncertainty.

Rajan said that while investments in artificial intelligence present exciting opportunities, they also carry significant risks.

"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.

He noted that state governments are already contributing by creating investor-friendly policies, but said more needs to be done.

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

Rajan also underlined the importance of building strong international relationships, including with neighbouring countries such as Bangladesh, Sri Lanka and Nepal. He said India has a real opportunity to expand both manufacturing and services, and to integrate more deeply into global supply chains.

On India’s growth trajectory, Rajan said the country does not need to emulate China’s rapid pace, parts of which proved unsustainable.

"Some of that was unsustainable, and we are seeing the problems the Chinese property market is facing now, and you know, it will take a number of years for it to get fixed," he said.

He also cautioned against unviable infrastructure and housing investments.

"Every city seems to want a metro, but not every city has the ability to put metro stations in the right place, and some of that investment may be hard to recover over time, and clearly, we should not build public infrastructure that people can not use," he said.

"It includes housing, as not all housing, even if we are a poor country with a lot of people without housing, can be utilised effectively, and so we have to be careful about helter-skelter growth," he added.