Asia's third-largest economy is facing its worst economic slowdown in nearly a decade with shrinking manufacturing, slower jobs growth and high inflation limiting the government's ability to offer sops to voters or companies to boost growth. (Agencies)
Opinion polls predict defeat for the Congress-led ruling alliance in elections due by May amid widespread discontent with its mismanagement of the economy, high inflation and corruption scandals.
Officials say Chidambaram is likely to make a last-ditch attempt to win back voters by announcing more funds for health, rural jobs, roads and food subsidies, and to speak about the government's achievements in the last 10 years.
Chidambaram is expected to cut factory-gate duties on products like autos to support the manufacturing sector, extend an interest subsidy on bank loans to exporters, farmers, and offer tax concessions for poorer regions.
Economy losing steam
Industrial output has fallen 0.1 percent in the first nine months of 2013/14 fiscal year, and annual car sales declined by about five percent.
Chidambaram has taken many steps such as reducing spending and gold imports to rein in the fiscal and current account deficit that helped stave off the threat of credit rating downgrades last year.
But he has made limited headway in taming persistently high inflation and shoring up economic growth.
The economy is projected to grow by 4.9 percent for the current fiscal year ending in March, much lower than the more than nine percent growth seen before the 2008 global financial crisis. Annual retail inflation remains uncomfortably near nine percent.
Chidambaram is likely to project nearly six percent GDP growth and a fiscal deficit target of 4.2 percent of gross domestic product for coming 2014/15 fiscal year.
He is expected to report a fiscal deficit of nearly 4.8 percent of GDP for the current fiscal year, helped by sharp spending cuts, higher receipts from the sale of telecoms spectrum and dividends from state firms.
"We will surprise everyone on the fiscal deficit numbers," a source in the Finance Ministry said.
Government may cut budgeted expenditure
"The government is expected to cut budgeted expenditure by 550-650 billion rupees in sectors like roads, metro rail, defence and power sectors to meet the deficit target," another source said.
The government may also defer oil, fertilizer and other subsidies worth nearly one trillion rupees to the next fiscal year, he said, adding the final figures could be higher and would be known only at the end of fiscal year on March 31.
Both sources declined to be identified because they were not authorized to speak about budget numbers.
However, the oil, fertilizer and food subsidies are likely to be budgeted at about two percent of GDP for next fiscal year, compared with 2.21 trillion rupees budgeted subsidies for this fiscal, the second source said.
The next government may revise these numbers when it presents the full-year budget in June or July.
Officials say the Finance Ministry has rejected the Power Ministry's proposal to grant an annual 250 billion subsidy for gas-based power plants to cushion customers as natural gas prices are set to almost double from April 1.
However, the Railways, Defence, Health and other ministries have been assured of more funds in the budget.
Analysts and the Reserve Bank of India (RBI) are worried that by deferring a large amount of subsidies to the next fiscal year, Chidambaram may harm growth prospects.
"The government should avoid deferring release of funds for expenses that have already been incurred, to prevent tightening of systemic liquidity and further harm to sluggish growth," said Aditi Nayar, an economist at ICRA, the Indian arm of credit rating agency Moody's.
The RBI has asked the government to target food and fuel subsidies for fiscal consolidation and take steps to deal with food inflation.
"The quality of fiscal consolidation worries us," Samiran Chakraborty, senior economist, Standard Chartered Bank, said in a research note on Wednesday.
Asia's third-largest economy is facing its worst economic slowdown in nearly a decade with shrinking manufacturing, slower jobs growth and high inflation limiting the government's ability to offer sops to voters or companies to boost growth.