India's finance minister Arun Jaitley will have to balance two competing imperatives when he presents the country's annual budget on Feb. 1.
He must find a way to restore India's crown as the world's fastest growing major economy and he also needs to keep the government on a path to lowering deficits. Meanwhile, the budget will assume more importance than usual because of a general election next year.
Broadly, economists said they expect Jaitley to present a budget that won't reduce the deficit as aggressively as in recent years. Instead, they predicted he would introduce measures to boost the rural sector, generate employment, provide some tax relief and continue with infrastructure spending.
In previous quarters, India's growth slowed as the economy adjusted to the crucial currency and tax reforms the government introduced. Though recent data suggested the growth momentum was returning, experts said economic conditions have become less favorable due to rising oil prices.
India now expects its gross domestic product to grow 6.5 percent for the financial year ending Mar. 31. That number, if realized, would be significantly lower than the 7.1 percent growth seen in fiscal 2017. India would also lose its growth crown to China, which grew 6.9 percent in 2017. India's fiscal year starts on April 1.
"India's angst is understandable," Sajjid Chinoy, chief India economist at J.P. Morgan, wrote in a note. "In a year when the global economy grew at its fastest clip in seven years, Indian growth is on course to slowing to a four-year low."
In the latest economic survey released this week, Indian policymakers said they need to manage the risks to the country's macroeconomic stability and push for more growth. Stability plans included successfully resolving the bad debt problem in India's public sector banks, stabilizing the goods and services tax implementation, and managing risks around higher oil prices and asset price corrections.