Merits of user tax on infra services : Business Line: 22nd January 2026

 Raising revenue has always been a challenge for a government. It is hard to raise direct tax rates, as it is said to come in the way of spending power. Besides, the government has been lowering income and corporate tax rates over the last decade or so. As for indirect taxes, the GST is outside the ambit of the Budget, but rates were separately lowered by the Council last September. Any talk of increasing taxes on goods and services can lead to inflation fears. At the same time industry, economists, market experts want more spending on infrastructure. Can one think of a different way of partly funding infrastructure through a separate tax?

This is where a new system of taxation can be introduced based on the principle of ‘multiple of 10’ where this number is applied as a special charge on various goods and services in infra space. It has been seen that an increase in cost has seldom been a limiting factor for use of services such as travel or even telecom services. The same holds for purchase of vehicles. Similarly, goods have to be transported irrespective of the cost involved as this can be partly passed on to the user. There can however be a price impact which can be examined separately.

It is, therefore, possible to design a cess or surcharge on goods and services associated with infrastructure that is not a burden on the user, but at the same time yield considerable revenue to the government, given the large number of users. The Table gives the potential revenue that can be garnered by just imposing this charge which can be called a tax, cess or surcharge on certain infra-related goods (vehicles used as a proxy for roads) and services based on volumes observed in FY25 or FY26 for them.

Price inelastic

What to expect from the Budget: Financial Express 20th January 2026

 

Union Budget 2026: Prudence, not populism, will be underlying theme to build Bharat: ETonline 19th January 2026

 https://www.msn.com/en-in/money/unionbudget2017-18/union-budget-2026-prudence-not-populism-will-be-underlying-theme-to-build-bharat/ar-AA1UumQC

Vehicles of Ambition: Book review in Financial Express of The Stoic Capitalist: 18th January 2026

 

Budget And Credit Policy: What To Expect In A Testing Fiscal Year: Free press Journal: 9th January 2026

 

As the Union Budget and RBI’s final credit policy for FY26 approach, attention will focus on fiscal deficit targets, capex growth, disinvestment plans and GDP assumptions. With limited scope for tax relief and a possible final rate cut ahead, policymakers face a delicate balance between growth and stability.

With the new year starting, the two immediate policies that are awaited are the budget and the credit policy. The credit policy will come just after the budget is announced and will also be the last one for FY26. The budget will come just after the FOMC meeting, and while it has no bearing on its content, the RBI will also pay attention to what the Federal Reserve has in mind. What can one expect from these policies?

Fiscal deficit path under focus

The budget to be presented will be special for several reasons. The first is that the path of the fiscal deficit will be tracked. Post-Covid, there has been a tendency for the deficit to be rolled back. While a 3% ratio is the ideal level, it is not possible to do so at one stroke and has to be done in a phased manner.

Second, this budget will also have to keep in mind the impact of the possible recommendations of the Pay Commission. While the direct impact will not be in FY27, a call has to be taken on whether provisions have to be made for the arrears component as and when the new dispensation is enforced. Third, there has to be internal discussion on the free food project, which is set to end by December 2028. A plan to roll back the same has to be put in place.

Support for exporters amid tariff backlash

Fourth, addressing the immediate concerns of exporters on account of the tariff backlash has to be provided for. It is expected that a trade deal will be signed by the end of March 2026, which will give space for the budget to address these concerns. Therefore, more than numbers, it is the ideology that will be of prime importance.

Nominal GDP assumptions crucial

What specifically will economists be looking for in this budget? To begin with, the assumptions on nominal GDP growth will be of interest. FY26 has been quite different from earlier years, with very low inflation, thus bringing about a virtual convergence between real and nominal GDP growth rates. This becomes important since the fiscal deficit ratio depends on the nominal GDP value.

If the ratio is to be lowered, then the fiscal deficit has to be lower if nominal GDP growth remains in single digits. Normally, nominal GDP growth of around 11% is assumed, which allows scope for a higher deficit value while still maintaining a lower fiscal deficit ratio. The growth assumed in the budget sets the tone for the implicit GDP growth, on which the Economic Survey usually offers guidance.

Capex constraints and expectations

Another major area of focus is government capital expenditure. At around Rs 11 lakh crore in FY26, capex accounts for a little over 20% of the total budget size. While the budget size grows annually by 5–10%, it may not always be possible to raise capex proportionately. Capacity constraints in project execution and completion are key reasons why capex targets are often not met at both central and state levels. An increase of not more than Rs 1 lakh crore can be expected.

Disinvestment and asset monetisation

The third area of interest will be disinvestment and asset monetisation, which have become increasingly important for budget formulation. Tax collections are constrained by GDP growth, making non-tax revenues and RBI transfers critical in determining overall fiscal space.

Limited scope for tax relief

Certain measures are unlikely, particularly in individual taxation. The government has already rationalised tax rates, especially for lower income groups in FY26, and is unlikely to provide further relief. However, there may be scope for tax benefits on interest income from bank deposits, given the slowdown in such savings. There is also a strong case for harmonising tax structures for debt and equity returns.

GST and customs duty outlook

On the indirect tax front, with GST 2.0 being implemented, there is limited scope for further changes. Attention will instead focus on potential changes in customs duty structures, especially in light of trade deals with the US and other countries that are signed or under negotiation.

Borrowing pressures ahead

The fiscal deficit level will indicate net borrowing for the year. FY27 will see redemptions of Rs 5.5 lakh crore, rising sharply to nearly Rs 9 lakh crore by FY31. This will test the market’s ability to absorb increasingly large government borrowings.

Credit policy outlook

Following the budget, the credit policy will be announced. Inflation and growth targets are unlikely to differ significantly from the December policy. One more rate cut, bringing the repo rate to 5%, may be expected, but this could mark the end of the easing cycle as inflation rises to the 4–4.5% range due to base effects.

The key challenge will be how policymakers respond to potentially lower GDP growth in FY27 compared to FY26. The limits of rate cuts in stimulating growth will be tested both at the policy level and on the ground.

Inflation has been low. That’s not necessarily a good thing: Indian Express 6th January 2026

 For two successive months, inflation has come in at less than 1 per cent. What are its implications for the economy? First, the low CPI inflation rates are in part due to the statistical base effect of high numbers last year. Households are not too convinced about low inflation. The RBI surveys on inflation perception reveal that in November, households put inflation at 6.6 per cent and the three months ahead rate was 7.6 per cent. While these numbers are lower than in the previous survey rounds, these figures do show that perceptions are quite different on the ground.

Second, these numbers are a conundrum for the RBI when it comes to interest rates. In December, when the MPC lowered the repo rate, inflation was low and growth very buoyant. In February, when the committee will deliberate again on rates, the situation will be the same. Inflation will remain low — the December number is likely to be less than or around 1 per cent. Logically, rates should be lowered again. But what will happen when inflation rises because of the low base effect? Will rates be increased?

Third, low inflation is a cause for concern because when food inflation is negative, farmers could be getting lower income even though production was very good for the kharif crops. This has ripple effects. If rural incomes are impacted, rural spending power gets constrained, and the benefits of GST 2.0 could likely dissipate. It has been reported that for crops like soybean and pulses, sales were reckoned lower than MSP in October and early November.

Fourth, from the point of view of manufacturing, low inflation, especially on the wholesale side, is not good news as it also means diminishing pricing power. While higher output is a major contributor to profits for companies, prices matter. In the case of CPI as well, the core component witnessed higher inflation mainly due to products like gold. It is low for manufactured products. All this means that there has also been some erosion in pricing power, which can be a challenge if it persists.

Fifth, lower inflation has already caused some slowing down of GST collections. Collections have also been impacted by lower tax rates.  The question is, will growth in tax revenues persist with persistently low inflation?

Sixth, low inflation has led to a situation where nominal GDP growth has tended to be only marginally higher than real GDP as against an average difference of 3-4 percentage points in the past. Low nominal growth poses a challenge for meeting the fiscal deficit targets. It would be interesting to see what nominal growth number is used when projecting fiscal numbers for FY27.

Low inflation thus has different implications for different players. Some sections of households may benefit, while some producers may be adversely impacted. The minimum amount of inflation that is needed to keep the economy ticking is around 4 per cent in our case — the target for monetary policy.

Book review | Mumbai: A Million Islands: Financial Express 28th December 2025

 Mumbai is the financial capital of India and probably the biggest attraction for youth looking for a living. But has one stopped to study and observe the city? Delhi as a city has a lot of historical significance, which has been brought into focus extensively through literature and art. But that kind of attention is missing for Mumbai. It is here that Sidharth Bhatia makes a mark with his brilliant book, Mumbai: A Million Islands.

The ‘million islands’ suffix is interesting as this a narrative about various sights in the city. Mumbai is endless in terms of the stories that can be told, and this holds true for its culture as well. The history of the city is not just of a homogenous entity, but that of several islands which shape what the city is today.

Balancing the present with the past, the author gives the reader a feel of both simultaneously as we turn the pages. Several thought-provoking points are made by the author in the book. For instance, he starts off by talking of ‘Mumbai is upgrading’, which is something one sees in the construction work of bridges, coastal roads and metro lines all across the city, something that is a continuous process. These have been pain points for citizens who have borne the brunt for years. There is a distinct tilt towards the rich, the author conveys, as seen by the luxury residential complexes that have come up, or the ostentatious structures in Bandra Kurla Complex.

The author also talks of the evolution of areas dominated by the Muslim community and portrays their fears and inhibitions. Contrary to conventional wisdom, parents in this community want their children to get an English education, hoping for upward mobility. There has been significant ghettoisation because of the community living in the same areas for decades and which looks distinctly underdeveloped compared with other geographies. A major challenge for Muslims is to find accommodation because of the prejudices that have been ingrained among the city as a whole. And this holdsirrespective of one being a commoner or a celebrity. The author talks to people in these communities and there is some recollection of the infamous Mumbai riots, during which they were at the receiving end.

Written in a very conversational form, Bhatia explores Mumbai through chapters dedicated to its various localities. The one on south Mumbai is classic as he delves into how British presence brought about a westernised look. The area of Marine Drive and Colaba carry a lot of history, and the author particularly talks of the architecture of these places. Houses had limited spaces for lobbies and took one directly to the lift unlike what we see today where vanity precedes everything else. There is commonality in the architecture in most buildings constructed at that time which is interesting. In fact, reading the book, the reader is compelled to go to Marine Drive and see for herself this distinct trait. Similarly, when he describes the walls around these buildings as being low and how the buildings ‘talk’ to those on the road reads very poetic.

He also takes us through the historical context of some of the dining places in Mumbai and starts with their foundation in the early twentieth century and their genesis. Liquor was not permitted in those early days and one needed a permit for it. Dress codes were a norm, and these hotels could get risqué with cabarets leaving nothing to imagination.

Bhatia describes his own escapades when talking to developers who are looking to create homes for the ultra-rich, resulting in buildings scaling heights both in terms of structure and price. Several areas in Mumbai now have been converted into major construction sites not just because of the metro but also for re-construction. Yet, something seems unplanned when one looks at how focus has shifted from Nariman Point and Reclamation in south Mumbai to Bandra Kurla Complex, which today is a nightmare for everyone as entry and exit to the place are challenging. Those who depend on public transport struggle to find one, while those with their own vehicles are left frustrated in their quest to park and exit.

There are 11 chapters capturing such images of the city, and while it is evidently not comprehensive, the book does cover most of what was known as Mumbai to begin with. The chapter on ship breaking and slums takes us thorough the property of Mumbai Port Trust and its evolution or neglect. The one on ‘Mills Become Malls’ is a must read for the present generation which is only aware of the high-end premium shops with high snob value and gourmet dining, and which excludes the proletariat through their pricing. These spaces were mostly textile mills with a history. Bhatia takes us through the trade union movement in this context and the story of its annihilation.

The Hidden City’ is the last chapter which will make us think harder. Starting from RK Studios, which was earlier known for glamour, he takes us through an area called Deonar and beyond. There are 124 five-storey buildings in the area that one will not notice. It was never advertised but was constructed by the famous builders like Hiranandani and the Shahs. These were rehabilitation buildings where one resident had just 225 square feet of living space. In the author’s words, which are eloquent and soul searching: “All of these buildings look like a vertical slum, a brutalist creation like council estates elsewhere. Add to it the fact that it is in the back of beyond, and the sense of alienation and exclusion is complete.” This is very hard-hitting considering that all this re-construction is otherwise considered as upgrading the city of Mumbai!