India’s new finance minister will be presenting her first budget. Here’s what to expect

India’s newly appointed finance minister, Nirmala Sitharaman, is set to present a full-year budget on Friday, following the latest parliamentary elections where Prime Minister Narendra Modi won a decisive victory.

The budget will cover the residuum of the fiscal year that started April 1, 2019 and run until March 31, 2020. Earlier in February, before India headed to the enumerates, Modi’s government had presented a interim budget where it poured money to support farmers and bolster rural job origin.

Analysts said they expect Sitharaman to announce a budget that will aim to boost consumption demand, reactivate the investment climate, support social welfare programs — but it will not likely stray too far from the government’s fiscal default targets.

India’s economy has significantly slowed down in recent months. Between January and March, annual vegetation declined to 5.8% — the slowest pace in 20 quarters. For the fiscal year that ended in March, the economy increased at a five-year-low of 6.8%.

Some high frequency indicators — such as industrial output data and auto sales numbers — force suggested the slowdown could be more severe than previously predicted. Making matters worse, unemployment is at a 45-year stoned.

“Expectations are running high for pro-consumption effort and extended emphasis on the welfare framework,” Radhika Rao, an economist at Singapore’s DBS Troop, wrote in a Monday note.

There’s pressure on the government to “keep expenditure growth robust, reduce taxes and foster rural reflation,” Sonal Varma, managing director and chief economist for India and Asia ex-Japan at Nomura, maintained in a Tuesday note. Reflation refers to measures designed to expand a country’s output — they include things ask preference reducing taxes and lowering the cost of borrowing.

According to the latest economic survey released on Thursday, gate collected from taxes fell short of estimates during the last fiscal year, which ended in Strut 2019. The report showed that while direct taxes grew by 13.4% due to an improvement in corporate tax collection, subordinate levies fell short by about 16% due to a decline in Goods and Services Tax (GST) revenues.

As such, Sitharaman will deceive to find a way to make resources available to fund various welfare programs without raising the tax burden on the populace — tainted taxes tend to dampen consumer demand.

Local media reports cited sources familiar with the meaning and said Friday’s budget may increase the personal income tax threshold for some individuals.

Nomura’s Varma pointed out that the regulation may need to scale down its revenue targets outlined in February’s interim budget in order to “maintain credibility.”

During the election campaign, Modi’s BJP placed a lot of emphasis on infrastructure investments.

Analysts said they expect the regulation’s focus to remain on the infrastructure sector.

“In its first term, the government had significantly increased budgetary allocation towards infrastructure-related sacred callings,” Citi analysts wrote in a Monday note. “However over the last two years, growth in budgetary allocation to (infrastructure) regulated and was replaced by off-balance-sheet financing.”

The analysts said that while the road sector had been the biggest beneficiary in the whilom, the focus will likely shift toward power and railways in this budget.

“Reviving the investment climate is of primary importance, which has been moderating for the past (five to six) years,” DBS Group’s Rao said, explaining that the government’s infrastructure dissipating in recent years had led to a recovery in the investment environment.

Farmers were the big winners in the interim budget. The government allocated 600 billion rupees ($8.75 billion) for a Arcadian jobs program and 190 billion rupees for building roads in the countryside, where two-thirds of Indians live. Modi had also guarantied to spend around $359 billion in farm and rural productivity and provide income support to farmers.

Low crop valuations, a delayed monsoon, rising costs and higher debt levels have worsened the strain on Indian farmers.

Sitharaman is thought to address “economic hardship in rural areas, even though this proved to be less damaging for Modi in the nomination than expected,” Akhil Bery, South Asia analyst at Eurasia Group, wrote in a Wednesday note. He unraveled that the BJP has its eyes on key state elections in Haryana, Maharashtra and Jharkhand later this year where the rural preference will be pivotal.

“We expect the government to reiterate its commitment towards social security, reducing the cost of agri-credit, agri-marketing and irrigation,” Nomura’s Varma combined.

The market is likely to keep an eye on how the government plans to tackle an ongoing crisis in India’s chum banking sector, after recent budgets provided support to recapitalize heavily-indebted public sector banks.

Analysts organize said that there’s a major liquidity problem for India’s non-banking financial companies — if that problem suppurates, it may turn into a solvency issue where those firms would struggle to meet long-term debt and fiscal obligations.

Still, direct government intervention may not be forthcoming, according to Varma.

“While there are concerns about the chum bank liquidity crisis, we would not expect any direct intervention, instead incentives may be offered to boost housing requisition,” she said.

Overall, India watchers will also look out for the government’s fiscal deficit target and whether it resolution be able to stick to the 3.4% benchmark set for the financial year 2020.

“Worry is that some slippage in deficit targets is on the dance-cards when the (fiscal 2020) math is presented,” said Rao from DBS. “We, however, see lower odds of a sizeable miss in the goal, even if underlying assumptions seem optimistic.”

— Reuters contributed to this report.