India to unveil 'populist budget'

India's farmers will be hoping to benefit from the budget

India's government is preparing to unveil its annual budget, with measures aimed at boosting farming and infrastructure set to feature highly.

The ruling Congress party is also expected to target inflation, which recently hit a two-year high.

Analysts have raised concerns that India's economy could overheat, with growth running at more than 9%.

A separate finance ministry report on Tuesday confirmed that the economy was showing signs of picking up pace.

The government's annual economic survey said India's economy had "decidedly taken off and moved from a phase of moderate growth to a new phase of high growth".

The budget this time will be more focussed on traditional India rather than modern India TK Bhaumik Chief economist Reliance Industries Balancing India's budget

However, the report raised concerns over the agricultural sector, which is forecast to grow by 2.7% in the current financial year, down from 6% a year earlier.

Analysts said weaker growth in agriculture, from which two-thirds of Indians make a living, would be high on the minds of ministers ahead of regional assembly elections in the key state of Uttar Pradesh.

"In any political economy, the finance minister has to respond to political circumstances," said TK Bhaumik, chief economist at Indian business giant Reliance Industries.

"Given the elections, the budget this time will be more focussed on traditional India rather than modern India."

Under pressure

The federal budget for the fiscal year running from 1 April 2007 to 31 March 2008 is due to be unveiled by Finance Minister P Chidambaram on Wednesday.

The government is under pressure to increase spending on social programmes as well as to limit inflation, as the cost of food and raw materials continues to rise.

India's inflation fell back last week to 6.63% from a two-year high of 6.73% earlier in the month, although it remains well above the central bank's target level of between 5% and 5.5%.

"The budget is likely to be influenced more by politics and less by economics because of the forthcoming election in such a crucial state," said DH Pai Panandiker, an economist at private think-tank the RPG Foundation.

"There will be much larger spending on the social sector, like education, employment generation and agriculture."