Government Under Pressure to Deliver 'Modinomics' in Budget

New Delhi: Prime Minister Narendra Modi's government unveils its first full Budget on Saturday under intense pressure to bring about promised reforms to grow India's economy after winning the biggest mandate in 30 years at last year's elections.

Mr Modi has promised to slash red tape, reform tax and overhaul land acquisition laws to try to attract foreign investment and create jobs for millions of young people.

But economists say investors were left underwhelmed by an interim budget introduced shortly after the Prime Minister took charge last year and are looking for concrete details this time, including on plans to boost India's manufacturing and improve shoddy infrastructure.

With stocks soaring and sliding global oil prices improving public finances, economists said this year's Budget was critical to pushing reforms forward.

"This budget needs to leave a mark, just as the 1991 budget did when the economy was going through a major crisis," DK Joshi said on historic reforms and moves to open up the economy to foreign investment. "There is a huge amount of expectation. And this is the critical time to deliver," said Mr Joshi, chief economist at local ratings agency CRISIL.

Finance Minister Arun Jaitley is expected to increase spending on crumbling roads, railways and dilapidated power infrastructure as part of Mr Modi's plans to entice foreign businesses to set up shop in India. The Prime Minister is also expected to continue his "Modinomics" agenda of "maximum governance, minimum government", including by handing more power to the states to implement such schemes to speed up decision-making.

Mr Jaitley will likely hike capital expenditure to at least two percent of GDP, up from 1.8 in the last budget, economist Samiran Chakraborty predicted in a research note, meaning a rise to 2.8 trillion rupees ($45 billion).

Economists warn the Finance Minister's plans will be restricted by the need for further prudence, after committing to cutting the fiscal deficit to 4.1 percent of GDP for 2014/2015 from 4.5 per cent the year before.

The government's moves are aimed at persuading the central bank to continue to unwind high interest rates to boost business borrowing and accelerate growth.

After the Reserve Bank of India's unscheduled rate cut last month, governor Raghuram Rajan said further reductions would be linked to "high-quality fiscal consolidation" and continued lower inflation.

The economy, thought to be struggling through the worst slowdown since the 1980s, is actually growing at 7.5 per cent, outpacing even China, according to a new formula for calculating GDP adopted by the government last month.

As Mr Jaitley presents the budget to Parliament, investors will be searching for specifics on much-trumpeted reforms such as the "Make in India" campaign, designed to turn the country into a manufacturing hub.