The union government will present its final budget on Thursday before elections, with plans expected to be fiscally prudent with a focus on infrastructure spending but heavy on political messaging ahead of the national vote.
Finance Minister Nirmala Sitharaman will announce the budget for the financial year 2024/25 which starts April 1.
She is expected to highlight the Modi government's 10-year economic performance but will hold back on expensive schemes to lower the fiscal deficit.
The budget could serve as an economic manifesto for Modi's party by laying out his vision for the economy for the next five years. He is bidding to win a rare third term in general elections to be held by May.
"The upcoming interim budget would lack any big bang announcements but is likely to be watched for the pace of fiscal consolidation and policy priorities ahead," said Madhavi Arora, an economist at Emkay Global.
The government is likely to aim to lower the fiscal deficit by at least 50 basis points in 2024/25 from its current target of 5.9% of GDP, which economists expect it to meet.
To attain this, the government will cap major subsidies on food and fertiliser at the current year's level, while announcing inexpensive welfare schemes like cash handouts for female farmers.
An increase in spending on low-cost housing is also likely.
"We rule out the likelihood of any aggressive competitive populism," Arora said.
The government is expected to increase capital spending or expenditure on infrastructure, which has been key to pushing the country's growth.
It will spend 10 trillion Indian rupees or over 3% of GDP on infrastructure in the current year with a further increase of as much as 20% expected for 2024/25.
The Indian economy grew 7.6% in the July-September quarter, and forecasts are for growth of 7.3% for the full year that ends on March 31, the world's fastest pace for a major economy. The economy is expected to grow at close to 7% in fiscal 2024-25, according to government estimates.
The government is expected to keep its gross market borrowing little changed in 2024/25 at between 15 trillion rupees and 15.5 trillion rupees.
"This budget is expected to primarily focus on fiscal consolidation. There will only be a marginal increase in market borrowings," said Rupa Rege Nitsure, Economist at L&T Finance.
In the current fiscal year, the government is expected to borrow 15.44 trillion rupees.
