Here's what economists expect from Mr Jaitley's first budget
A roadmap for growth revival: The Indian economy is in the midst of its worst slowdown in over 25 years, with GDP clocking sub-5 per cent for two straight years. This year growth is expected to pick up to 5.4-5.9 per cent, but that will not be enough to provide jobs for 13 million young Indians who enter the workforce each year. The imminent challenge for Mr Jaitley will be to announce a credible roadmap for recovery at a time when deficient monsoon rains and oil shocks threaten to derail revival hopes.
Fiscal consolidation: The UPA government unveiled a roadmap for fiscal consolidation after global agencies threatened to downgrade the country's sovereign rating citing high fiscal deficit (a situation when the government spends more than it earns). According to the roadmap, the government has to narrow fiscal deficit to 4.1 per cent of GDP this year from 4.5 per cent last year. The UPA government met its deficit target by rolling over subsidies to the current year and cutting down on productive spending. Mr Jaitley, however, will have to devise new plans to meet the deficit target and not hamper growth-related spending. (Read: Why Arun Jaitley May Breach Chidambaram's 'Red Line' on Fiscal Deficit)
Cutting unproductive expenditure: The government's non-plan expenditure (interest, defence, salaries, and subsidies) is twice that of planned spending (roads, airports, ports, etc.). What's more shocking is the share of capital expenditure (used for infrastructure creation) has been systematically declining from a peak level of 3.8 per cent in 2003-04 to 1.7 per cent last year. This skewed spending has hurt the economy. Economists expect Mr Jaitley to take a tough stance on subsidies, which accounted for 2.2 per cent of India's GDP last year. The new government may also revamp social schemes like Mahatma Gandhi National Rural Employment guarantee Act to link it to asset creation. (Read: Arun Jaitley to Focus on Chidambaram's Unfinished Agenda)
Increasing receipts: The government's tax collections have fallen because of a sharp slowdown in growth. So, Mr Jaitley does not have the luxury to raise taxes to raise additional funds for productive expenditure. Economists expect Mr Jaitley to raise funds by selling government's stake in state-run companies. The divestment target for this year may be the highest-ever set by any government in the past, analysts say. (Modi to Target Record Asset Sales in Budget: Report)
Reforms: The new government has a majority in Parliament, so economists expect Mr Jaitley to push reforms aggressively. Mr Jaitley is expected to come out with a roadmap on goods and services tax (GST), which is dubbed as the single-biggest fiscal reform in the country. The GST will widen tax base, improve tax compliance and reduce transaction costs of businesses. It can add as much as 2 per cent of GDP to India's economy. Mr Jaitley is also expected to usher in labour reforms, urgently needed to create jobs and boost the manufacturing sector. Reforms in coal and power sector are also anticipated. (First Budget Test of PM Modi's Reform Mettle)
Foreign capital: The government needs to open up more sectors of the economy to attract foreign capital. Economists expect Mr Jaitley to announce FDI liberalisation in defense, railways and insurance to 51 per cent or higher.
Push to manufacturing sector: The manufacturing sector's contribution to India's GDP has remained largely stagnant at around 15 per cent of GDP for many years. Mr Jaitley is expected to announce plans to revive manufacturing, which absorbs a large part of India's unskilled workforce. (Why Arun Jaitley Must Revive Manufacturing Growth)
Reviving infrastructure: The budget is likely to contain elaborate measures to revive infrastructure projects, which have been held up because of slow decision-making and factors such as delay in land and environment clearances. Projects worth Rs 6.2 lakh crore were shelved last year due to bureaucratic gridlock, according to CMIE, an economic think tank, the highest in the past 18 years.
Improve investment climate: Mr Jaitley may postpone the implementation of GAAR (General Anti-Avoidance Rules) by another year to April 2017 and scrap the previous government's decision to implement it retrospectively. The law, brought by the UPA government in 2012, had evoked sharp reactions from domestic as well as global investors. It was cited as one of deterrents for attracting foreign funds into the country.
Tax relief to middle class: Mr Jaitley may double income tax exemption on long-term financial savings to ease tax burden on the middle class. Currently, the income tax exemption limit on such savings is capped at Rs 1 lakh. The move will incentivize domestic savings, which is an important source of low-cost funds for the government. The revenue thus foregone may be compensated by raising tax on the super-rich. (Read: Arun Jaitley May Double Tax Exemption in Maiden Budget)