President Pranab Mukherjee, making his first address to a joint sitting of Parliament on the first day of the Budget session, set the tone for what is expected to be an austere Budget 2013-14, saying that the past year had been financially difficult for the country, with the Indian economy experiencing slower growth.
Mr Mukherjee said inflation was easing gradually, but was still a problem. He also enumerated the government's efforts to battle the situation, saying it had announced a roadmap for fiscal consolidation, taken several measures to revive investment activity and investor sentiment and remained committed to "creating a 100 million jobs within a decade".
He pointed to the liberalisation of the foreign direct investment policy that opens India up in the multi-brand retail sectors, politically contentious decisions, as a major step in building investor confidence.
In the Union Budget that he will present next week, Finance Minister P. Chidambaram has the tough task of balancing the political needs of his party with economic imperatives.
Reuters has quoted ministry sources to say that Mr Chidambaram is determined to rein in the fiscal deficit, having won reluctant agreement from leaders of his Congress party, who had wanted a spending spree ahead of the general election due next year.
There is much speculation that this might be the last Budget that the government presents, if it decides to call elections earlier than May 2014.
Mr Chidambaram is reportedly focused on trying to avert a sovereign credit downgrade and is expected to cut the public spending target for fiscal 2013-14 by up to 10 per cent from this year's original target.
Critics have warned that at a time when both private investment and consumer demand are weak, lower public spending risks deepening India's sharpest economic slowdown in a decade. Growth in 2012-13 is estimated at 5.0 per cent, the lowest since 2002-03.
But Mr Chidambaram has argued that a lower fiscal deficit will not only avert a rating downgrade threat but also bolster economic growth prospects as borrowing costs for private investors will fall, helping lift capital investment growth from a five-year low.