NEW DELHI - India's Finance Minister Nirmala Sitharaman, who is due to present the budget on Tuesday (Feb 1), will balance growth with fiscal consolidation, according to economists.

They said she will have to juggle inflationary pressures, a third wave of the Covid-19 infections and looming elections in a number of key states.

Like in the previous budget, the finance minister is expected to announce increased spending on infrastructure, investment-driven growth as well as increased allocations on welfare schemes, health and education.

DBS Bank senior vice-president and economist Radhika Rao said: "While the pandemic firefight dictates near-term outlook, the 2022 budget will seek to strike a balance between growth and consolidation, focused on priorities which include restoring jobs after a bumpy phase for the informal labour markets, and support investment revival plans with higher capex (capital expenditure) allocation.

"Thanks to strong revenue growth and faster-than-budgeted nominal growth numbers, this fiscal year's deficit is likely to be met, followed by a modest consolidation for the next fiscal year," she added.

The fiscal deficit in the period 2021 to 2022 was 6.8 per cent.

India is expected to regain the world's fastest-growing economy tag this fiscal year amid downgraded growth forecasts following the third Covid-19 wave which has led to some disruption in the economy, including subdued consumption as state governments impose curfews and weekend lockdowns such as in the capital, Delhi.

The International Monetary Fund has cut the country's growth forecast from 9.5 per cent to 9 per cent for the current fiscal year ending March 31, and to 7.1 per cent for next year, which begins in April.

The government is also expected to favour investment-driven growth and raise additional resources through strategic divestments and asset monetisation.

It is looking to raise 1.75 trillion Indian rupees (S$31.7 billion) by divesting stakes in state-run firms. So far, the government has raised less than 100 billion Indian rupees. A major move is expected to be the public listing of insurance firm Life Insurance Corporation.

"The government needs to aim for increasing funds that flow through foreign direct investments, asset monetisation and disinvestments to cover its fiscal deficit for the next budget year," said Mr Rishi Sahai at Cogence Advisors, a finance firm.

"On a macro level, developing manufacturing, and infrastructure sectors which are large employment generators that have a trickle-down effect on a lot of ancillary industries, including SME (small and medium-sized enterprises) and MSME (micro, small and medium-sized enterprises), should remain a priority," he said.

The budget also carries expectations of tax reliefs for India's middle class to reduce inflationary pressure. Additionally, a demand for a rich tax has also been doing the rounds.

A survey by Fight Inequality Alliance India, a group of non-profit organisations and human rights campaigners, found that more than 80 per cent of Indians support a "Covid-19 surcharge" on those earning more than 20 million Indian rupees per year and a temporary tax on companies that made record profits during the pandemic.

Budgets presented during elections usually have a populist element and analysts said that it remains to be seen if the government of Prime Minister Narendra Modi will eschew fiscal discipline and go down that route.

Uttar Pradesh, a politically important state where Mr Modi's ruling Bharatiya Janata Party is seeking to return to power, goes to the polls, starting from Feb 10. It is being seen as a barometer of voter sentiment ahead of general elections which are not due until 2024.

Four other states - Punjab, Goa, Manipur and Uttarakhand - are also going to the polls beginning next month.

Writing in The Times of India, economist and columnist Swaminathan S Anklesaria Aiyar said this year would see an election budget.

"Last year, India got an economist budget. But with five states going to the polls soon after the budget, radical reform is unlikely," he wrote.

"It will have welfare schemes and new projects galore for every conceivable vote bank, especially in UP (Uttar Pradesh)."