India is just a month away from the annual Budget. It is tabled on Feburary 1. The Indian economy is poised interestingly. While GDP has surged above 8%, inflation plunged to lowest levels in October. All eyes are now on the key Budget announcements that would look to balance growth and inflation levels within the target rates. The Govt’s fiscal prudence is no doubt tested at a time when global headwinds continue to be a key concern.
As the government aims to keep inflation within a “comfort band” so growth is not hurt, here is a look at what can be expected from this year Budget and how the Indian economy had performed in terms of inflation.
CPI inflation: From 3.61% in February, 2025 to 0.25% by October, 2025
CPI inflation In October headline CPI inflation fell to 0.25%, the lowest year-on-year CPI inflation in the current series. After this in November the CPI Increase of 46 basis points to 0.71%.
This is a sharp ease in inflation from 3.61% (YoY) recorded in the Budget month of February 2025.
From 4.0% to 2.0%: RBI’s inflation outlook for FY26 changed in a year
In its latest Monetary policy committee meeting of December, Reserve Bank of India (RBI) projected the CPI inflation at 2.0% for FY26 which has eased from 4.0% forecasted in its April meeting. The RBI noted that inflation trajectory has improved sharply.
RBI also noted that average headline inflation in Q2FY26 slipped to 1.7%, breaching the lower tolerance band of the RBI’s inflation target for the first time since the adoption of flexible inflation targeting.
RBI highlighted that ease in CPI inflation was driven largely by a steep correction in food prices. The Food inflation turned decisively negative, led by sharp deflation in vegetables, cereals and spices, while core inflation remained largely contained despite pressures from precious metals.
The sharp moderation in inflation over the past year has fundamentally altered India’s macroeconomic landscape ahead of Budget 2026. The upcoming Budget will therefore be closely watched for measures that balance growth support with fiscal prudence, ensuring that the current disinflationary gains translate into durable economic momentum.