The fractious coalition government is likely to avoid any sweeping reforms, preferring populist measures after a poor showing from the leading Congress party in recent local polls and as a general election looms in 2014 at the latest.
Following are some of the measures which might be addressed in the budget, which will be delivered by Finance Minister Pranab Mukherjee to parliament on Friday:
Refiners want a waiver of a withholding tax which could be as high as 40 percent on payments made in rupees for Iranian oil. The government wants payments for Iranian imports to be made in rupees but so far the mechanism has not taken off, partly because of the tax issue.
Global oil prices have surged as much as 13 percent since the last budget, increasing the revenue losses of state-run retailers that sell at below market rates.
Domestic prices of diesel, cooking gas and kerosene are still heavily subsidised by the government and the budget could take steps to cut the financial burden.
The government could increase prices of these subsidised fuels or announce enhanced subsidy support for state-run fuel retailers, who are expected to incur a revenue loss of 1.4 trillion rupees in the current fiscal year on subsidised sales.
One option could be to fix a per litre subsidy for diesel sales, as favoured by a finance ministry report on Thursday, to curb demand for the fuel in case global prices rise and to specify the government's annual subsidy share in advance.
For liquefied natural gas (LNG) imports, industry is seeking elimination of five percent import tax, a move that would cut power generation and fertiliser production costs.
The government could take steps to curb imports of refined palm oil after a surge in February imports on the back of a tax change by Indonesia to make refined product more attractive than crude.
New Delhi could raise the import tax from the current 7.5 percent or could increase the base price used to calculate the import tax.
The tax-free export policy on rice and wheat is likely to continue as stocks remain high and supplies strong.
No major tax break is expected for sugar as production exceeds demand, making the world's top consumer a net exporter in 2011/12.
On pulses, no change is likely to the current zero import duty, as India continues to need extra supplies.
The budget usually contains some measures for investment in the farm sector, which contributes around 14 percent to overall gross domestic product (GDP) and employs more than half the country's work force. The sector is set to grow at 2.5 percent in 2011/12, marginally lower than earlier projections, according to a finance ministry report published on Thursday.
This year there could also be moves to raise rice and pulses output in non-traditional regions such as the north east.
IRON ORE, COAL, STEEL
Iron ore export duties are likely to stay at 30 percent despite calls from miners for them to be cut, as the government tries to encourage retention of supplies of the steel-making raw material for domestic use.
The steel industry has called for coal imports to be exempt from customs duty. The state-run mining monopoly, Coal India, could be given some incentives to boost production.
The government is likely to raise prices of nitrogenous urea -- possibly by more than 10 percent -- as it tries to cut subsidies for the widely-used fertiliser, whose production costs have been hit by high freight rates and gas prices.
The government may also modify subsidies to existing urea producers. India on March 1 trimmed the subsidy for potash and phosphatic fertilisers for next financial year.
Copyright@ Thomson Reuters 2012