Budget 2026-27: The next five reforms India needs to boost growth

They can help ensure that India remains on a high-growth trajectory over the next two decades

For the first half of this year, India has grown at 8  per cent, defying most expectations. Despite volatility in global trade and tariffs, India’s exports grew by nearly 20 per cent in November. With reforms in the goods and services tax, the removal of several quality control orders, the reports of committees on deregulation, and the crucial implementation of the labour codes, these structural reforms raise India’s potential growth rate.

  Currently, Parliament is debating important bills on private participation in nuclear energy and 100 per cent foreign direct investment in the insurance sector. 

Clearly, the reform agenda is not running out of steam. We must keep this reform momentum going. We must not be satisfied with 8 per cent growth rates for successive quarters — we need them for the next two decades. 

History shows that only a handful of economies, such as Japan, South Korea, Singapore and China have achieved such long, uninterrupted growth cycles. India now has the macro-stability, digital backbone and institutional capacity to attempt this leap. We must raise productivity, lower costs, deepen markets and strengthen our cities.   

These are the five reforms that India needs: First, municipal reform. We cannot let our cities choke on pollution and overflow with waste anymore. While Global Capability Centres are expanding rapidly, their future scale depends on cities that offer clean air, reliable infrastructure, efficient urban transport and responsive local governance. The Budget last year announced the creation of an urban challenge fund, worth ₹1 trillion. This must be operationalised at the earliest. Climate risk must be a central part of urban planning, with clean mobility and efficient buildings mainstreamed. Implementing circular economy solutions around water and waste is crucial not just for sustainability but also for public health. Fixing urban governance will make urbanisation a productivity multiplier. 

Second, to continue building our manufacturing depth, the Clean Tech Manufacturing Mission and the National Manufacturing Mission, announced in the Budget, must be operationalised at the earliest. We must build our capabilities in the technologies that are defining global industrial competition. Technologies such as semiconductors, solar PVs, batteries, electrolysers and critical minerals are as much a technological flashpoint as they are a geopolitical one. Today, India remains heavily dependent on imports for many of these components, exposing us to supply chain risks and undermining strategic autonomy. We must bet big on green and digital manufacturing. Continued investments in infrastructure are essential, as world-class infrastructure and urban ecosystems enable manufacturing to thrive. Blended finance, de-risking instruments and modern public-private partnerships (PPP) contracts can crowd in significant private capital to help overcome India’s infrastructure deficit. 

 

Third, we must reduce trade barriers. India’s manufacturing and export ambitions require a clear recognition of a simple reality: To export competitively, India must import efficiently. Customs reforms are an important area of reform, as identified by the finance minister. Faster clearances, risk-based inspections, and a shift to trust-based compliance should be the desired outcomes of this reform exercise. Reducing trade barriers also means fast-tracking negotiations of free trade agreements (FTAs). We must accelerate FTA negotiations while clearly protecting our red lines, particularly in agriculture and sensitive sectors. Speed matters. Manufacturing ecosystems need assured access to large markets to achieve scale, attract investment, and integrate into global supply chains. Trade policy should be seen as an instrument of growth.  

Fourth, innovation policy must be reoriented from grants to mission-driven development. A dedicated national programme that provides grants of $1 million to 500 academics from the world’s top universities will attract the best minds. In parallel, a sabbatical programme inviting 1,000 academics to support them with grants of $100,000, with top-ups, will promote knowledge transfer and ecosystem development. Commercial innovations are a blind spot in our innovation ecosystem owing to a lack of industry-academia partnerships. Global models, such as the Warwick Manufacturing Group (WMG) at the University of Warwick, UK, are a pertinent example. The WMG conducts industrial research, offers degrees, and supports small businesses. Notably, they have partnered extensively with the Tata Group, including through Tata Motors. Such centres must be established nationwide, starting with the Institutes of Eminence. 

The government must not just fund research, but also become a buyer of technology. Putting out grand challenges, ranging from sewage-free cities and real-time water quality monitoring to indigenous clean-energy batteries, precision digital support for farmers, and radically faster urban infrastructure delivery, can help scale these solutions and expand their applicability across the Global South. 

Finally, we must lower the cost of capital in the economy. The average cost of capital in India is 400 to 600 basis points higher than in other large economies. To reduce the cost of capital, fiscal consolidation is a must. If the government borrows a sizable chunk of available capital, whether at the Centre or the State level, the remaining capital in the economy becomes more expensive. Institutional mandates ensure that government debt is bought up. Take, for instance, the statutory liquidity ratio (SLR), which mandates that 18 per cent of all bank assets must be held in government securities. Similar provisions exist for insurance companies, too. There must be a phased rollback of the SLR to free up capital and lower borrowing costs. At the same time, the deepening of bond markets will allow more corporate debt to be raised through bonds rather than loans. 

Sustaining 8 per cent-plus growth rates is necessary if we are to reach high-income status by 2047. Our foundations: Macroeconomic stability, digital public infrastructure and structural reform, are firmly in place. We must match the boldness of our vision with execution.

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The author is chairperson, Fairfax Centre for Free Enterprise, former G20 Sherpa and Ex-CEO, NITI Aayog, Govt of India. Views are personal