Finance Minister Jaswant Singh is expected to try to please voters on Friday with a mildly expansionary Budget ahead of state and national polls while seeking to avoid damage to India's poor international financial standing.

Singh, presenting his first Budget after serving as foreign minister, is regarded as the economic reformist face of the ruling Bharatiya Janata Party.

But that side of the veteran politician is unlikely to come to the fore with politics expected to drive the 2003-04 Budget. Analysts say he will aim for a relatively expansionary feel-good budget that will seek to avoid electorally unpopular moves.

"This isn't the time for any innovative or bold budgets. The finance minister has little room for manoeuvre," T K Bhaumik, economic adviser to the Confederation of Indian Industry, said.

The BJP, facing a slew of state polls this year in the lead-up to a general election due in 2004, fared badly with last year's Budget, which got bad reviews from the party's middle-class backers.

Even though inflation is rising, analysts expect pump-priming moves to boost Asia's third-biggest economy, whose growth is forecast to slow in 2002-03 to 4.4 per cent from 5.6 per cent.

"It will be a relatively expansionary budget. The finance minister has already spoken about putting more money in the housewife's wallet and food for the poor," said Bhaumik.

To drive consumer demand, duty cuts are expected on cars and consumer durables such as fridges and TVs. More money is also likely for irrigation, rural roads, health and primary education.

The moves will mean slippage on the deficit, which ratings agencies say is a big obstacle to growth reaching the eight-to-10 per cent needed to ease poverty in the country of one billion.

The central deficit is forecast at 5.3 per cent of GDP for 2002-03 and the consolidated deficit of the national and state governments is close to 10 per cent, keeping India's sovereign ratings at junk levels.

Overshoot target

Economists believe the national government will overshoot its deficit target this year, especially since it has fallen far short of its goal of raising Rs 12,000 crore (Rs 120 billion) from privatisation, due to stiff political and labour opposition.

"They will not be able to stick to 5.3 per cent. It will most probably be 5.8 to 5.9 per cent," D H Pai Panandikar, head of the RPG Foundation think-tank.

Other economists also expect a higher deficit target next year but say bigger tax revenues from resurgent sectors such as cement, automobiles and steel should limit the increase.

Growth has slowed due to last year's drought. The farm sector contributes 25 per cent to GDP.

But this has been partly offset by healthier industrial output. Tax collections between April and January were 15 per cent higher than a year earlier.

A Reuters survey forecast the government would announce gross market borrowings of Rs 1.45 trillion to Rs 1.50 trillion for the next year, just above the 2002-03 target of Rs 1.43 trillion.

To draw foreign investors, foreign investment caps are likely to be raised in the fast-growing telecoms sector and banks.

But with the packed election calendar, analysts expect Singh to steer clear of a radical overhaul of the byzantine tax system, where evasion is rampant.

"I expect only politically palatable recommendations to be accepted," said Anirudha Dutta, analyst at ASK-Raymond Jones.

Singh could also seek to lure back small investors to the stock market by removing divided and capital gains taxes.