Beyond the Goldilocks glow: Budget priorities on 1 February

Subscribe to enjoy similar stories. India goes into the Union budget with what looks like a “Goldilocks" macro mix: growth is steady, inflation seems under control, the fiscal glide path is intact, and sovereign ratings are up a notch. Yet, the economy is sending mixed signals that the budget cannot ignore.

We need a budget for tomorrow’s challenges rather than yesterday’s comfort. The output of the eight core industries grew at 2.6% year-on-year in April–December of FY26, one of the slowest pace in a decade, and it was broad-based, including contraction in natural gas, crude oil and coal. This indicates a subdued industrial pulse and that growth momentum is narrower than the headline narrative suggests.

Public capital expenditure (capex) has been the workhorse of the post-pandemic recovery. But it cannot remain the sole engine indefinitely due to debt dynamics. The Centre’s gross tax revenues grew only 3.3% in April–November of FY26, far below the 10.8% growth assumed for the full year.

It is a reminder that even a fiscally-strong state cannot bank forever on buoyant revenues while sustaining elevated public capex. So, how do you crowd in private investment without fiscal adventurism? By fixing the invisible frictions that raise the cost of capital. One of the biggest is GST design.

If input tax credits (ITC) on capital goods remain trapped or unusable, the consumption tax quietly becomes an investment tax. The budget should therefore prioritise clean, credible reform that makes ITC on capital goods fully usable and refundable when it accumulates, rather than leaving it stranded on balance sheets. This reform will boost productivity, and is not a “giveaway." The other big priority is jobs at scale.