BUDGET PRIORITIES: BEYOND THE GOLDILOCKS GLOW

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.

- AJIT RANADE

Yet, the economy is sending mixed signals that the budget can’t ignore. We need a budget for tomorrow’s challenges, rather than yesterday's comfort.

The core sector output grew 2.6% in April-December, one of the slowest paces in a decade, and it was broad-based. This shows a muted industrial pulse and that growth momentum is weaker than what the headline narrative suggests. Public capex has been the workhorse of the post-pandemic recovery. But it can't remain the sole engine forever due to debt dynamics. Gross tax revenues grew only 3.3% in April-November, far below the 10.8% pegged for the year. It shows even a fiscally-strong state can't bank forever on robust revenues with a sustained high public capex.

So, how do you crowd in private investment without fiscal adventurism? By fixing invisible frictions that up the cost of capital. One of the biggest is the GST design. If input tax credits (ITC) on capital goods are trapped, consumption tax quietly becomes an investment tax. Budget should thus prioritize clean, credible reform that makes ITC on capital goods fully usable and refundable, rather than leave it stranded on books. This will lift productivity, and isn't a “giveaway.”