Budget: A symphony in three movements

Budget sustains fiscal consolidation, signals to global capital to invest in India, and proposes institutional changes to facilitate growth

- NK Singh

Budget 2026-27 comes at an inflection point. India’s choices are no longer about cyclical tweaks. They are about basic architecture. We have been emboldened by robust real GDP growth, with a stable macro framework. This is notwithstanding external fragility and multiple institutional rigidities. The goals cannot be sequenced. They must move in tandem. This is orchestrated in this budget. It attempts to act with audacity, panache and cautious optimism.

Three movements define it.

First, noninflationary growth. Old macroeconomics treats this as a trade-off, as illustrated by Okun’s law. India’s recent experience counters this. Growth for FY27 is expected to be around 7%; even as inflation has eased meaningfully. In Olivier Blanchard’s latest work, Fiscal Policy under Low Interest Rates, he calls it the “divine coincidence”. It rests on higher total factor productivity, supply-side repair, logistics improvements, and fiscal discipline. Food disinflation and supply corrections have led to moderation in headline CPL This boosts purchasing power but also compresses nominal revenues. That is the asymmetry in today's macro mix. Good for households. Harder for debt arithmetic.

Usually, there is symmetry between inflation and the GDP deflator. However, they may diverge when prices move differently for what a country produces versus what its households consume. Export booms can inflate the deflator while keeping the CPI low, as exhibited by Norway in 2022 and Japan in the 2000s. The recent success of India’s trade agreements has opened up this possibility for India.