Finance Minister Pranab Mukherjee might have to fall back on divestment and other non-tax revenue sources while presenting the Budget for 2009-10 on July 6, economists believe.
"There is little room to cut expenditure or hike revenue. In this scenario, the government will go for divestment, auction of spectrum and other non-tax revenue to check fiscal deficit," economic think tank National Council for Applied Economic Research senior fellow Shashank Bhide said.
He said the government might take some major decisions related to divestment in big public sector units.
Economists feel Mukherjee faces the double challenge of spurring growth in the sagging economy and checking the increasing burden on the government's exchequer.
"Rise in fiscal deficit is sure a matter of concern, but the government's focus will be on boosting demand in domestic economy and facilitating increase of purchasing power in the backdrop of global meltdown," senior fellow at Research and Information System (RIS) Sachin Chaturvedi said.
To revive growth, the economists suggest heavy investment in infrastructure such as roads, freight corridor and linking of rivers, and social sectors programmes like employment guarantee scheme, health and education.
NCAER's Bhide said the government is likely to reduce tax on investments in housing projects and infrastructure and may issue infrastructure bonds in its efforts to put the economy back on the growth trajectory.
The global downturn has pulled down the growth of Indian economy to 6.7 per cent in the last fiscal from the high of 9 per cent in 2007-08 and 9.6 per cent in the year 2006-07.
While, during the interim Budget in February the government targeted limiting the fiscal deficit fixed to 5.5 per cent of GDP, the financial year 2008-09 saw the deficit at 6.2 per cent.
"The government is likely to give priority to the development of social, economic and agriculture sectors," economist Tushar Bhattacharya, who has worked with several industry and trade bodies pointed out.
Bhattacharya added that the fear of falling exports on the back of global slowdown continues and that the government might take steps to boost exports to the Africa and the Latin America.
Speaking about service tax, Bhide said there might be some increase in the forthcoming budget, however, Chaturvedi and Bhattacharya feel there is very little scope for any such rise.