The Union finance minister will present the Budget on 1 February against a macroeconomic backdrop that would be the envy of the world. India’s growth forecasts have been revised upwards by major institutions like the IMF. The quarterly GDP numbers also suggest an upward momentum. And consumer inflation has drifted to strikingly low levels, lower than even the RBI’s comfort band.

This combination of high growth and low inflation is a ‘sweet spot’ described as a ‘Goldilocks’ economy. The temptation is to conclude that macroeconomic management is fine and that the task of policy is simply to preserve the trajectory.

However, a closer examination suggests caution. Not because the headline numbers are ‘wrong’, but because they mask uneven, potentially reversible forces. The Budget should use this window not to relax but to strengthen foundations for robust development.

The first issue is to understand the current ‘low inflation’. In October 2025, inflation fell to 0.25 per cent, largely due to food price deflation, which moved from double-digit inflation in October 2024 to nearly -5 per cent. Food carries a heavy weight in the Consumer Price Index (CPI) basket and that’s why the latter is low. Yet ‘core’ inflation, excluding food and fuel, stubbornly hovers near 4 per cent. This low CPI inflation tells us more about agricultural price cycles and supply conditions than sustained deflation.

That is why the monetary policy debate has an unusual note of caution. One member of the RBI’s monetary policy committee recently argued that inflation that is ‘too low’ may not be healthy for a developing country, because it reflects slack in demand. This warning deserves........

© National Herald