THE GOLDILOCKS MIRAGE

The Budget should treat the current configuration as a window to strengthen foundations, not as a reason to relax

- Ajit Ranade

On 1 February, the Finance Minister will present the Union Budget for the next fiscal year 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 suggest upward momentum. And consumer inflation has drifted to strikingly low levels, even lower than the RBI’s comfort band. This combination of high growth and low inflation is a “sweet spot” called 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 more careful reading is warranted. Not because the headline numbers are “wrong”, but because the forces producing them are uneven, potentially reversible, and not fully aligned with growth that leads to inclusive prosperity. The Budget should therefore treat the current configuration as a window to strengthen foundations, not as a reason to relax.

The first issue is to understand the current “low inflation.” In October 2025, the inflation was as low as 0.25%. A significant part of this disinflation is explained by food prices, which have moved from double-digit inflation in October 2024 to outright deflation a year later, turning negative 5%. Food has high weight in the CPI basket and that’s why the latter is low, This consumption reality still dominates food inflation. The “core” inflation outside of food and fuel has been stubbornly higher, close to 4%. This low CPI inflation tells us more about agricultural price cycles, supply conditions and weak underlying demand.