India's budget would face severe challenges during the upcoming fiscal year.

Indian Prime Minister Narendra Modi's administration will deliver its final budget for a complete fiscal year on February 1 before he and the Bharatiya Janata Party (BJP) stand for election in the first half of 2024 and seek a third term in office.

At a time when India's chances of improving due to internal and international economic circumstances are slim, Modi's administration will need to ensure economic growth and a larger social welfare program.

The National Statistical Office, India's top economic statistics body, recently projected the country's economic growth rate for the current fiscal year, which ends in March, at 7%, down from the 8.7% growth the government had forecast at the start of the fiscal year. India's growth is expected to be less in the upcoming fiscal year, at 6.6 percent, according to the World Bank. After seeing the most recent official projections, several other economists have estimated it even lower.

In succeeding fiscal years, the federal government's capacity to raise tax revenue proportionate to the size of the economy and its promise to cut its fiscal deficit rate—the amount it must borrow to fund spending as a percentage of the nation's national income—have both been plainly constrained. Nirmala Sitharaman, the finance minister, will have her work cut out for her if she wants to achieve both growth and welfare.

M. Govind Rao, an economist who has held key advisory and decision-making positions in the Indian government, wrote, "Assuming that the government will contain the deficit at the budgeted 6.4 percent in 2022–23, there will need to be a reduction of 1.9 percentage points over the next three years, and quite a considerable part of that has to be done in the forthcoming budget."

With this objective in mind, New Delhi attempted, however unsuccessfully, to raise money during the previous year by trying to sell its holdings in a few state-owned businesses. The government won't be able to significantly raise tax revenues, so it won't be able to spend more money.

With the exception of food and energy, the government has already had to deal with persistently high prices for goods and services. This so-called core inflation, which lingered above 6 percent in November, will also need to be controlled.

"While November and December 2022 saw a welcome reduction, our inflation rate is still high. Core inflation, however, continues to be high and sticky, according to Shaktikanta Das, governor of India's Reserve Bank of India, who spoke on January 27.