The government's first full-year budget since its resounding re-election may signal that increasing populism and ruling coalition infighting will triumph over policies to liberalise the economy and cut record borrowing.
This could be the year for India. The world is looking for motors of growth in Asia, the USD 1.2 trillion Indian economy is recovering faster than expected and the Congress-party led coalition also enjoys a clear majority in parliament.
In theory, the budget could allow Finance Minister Pranab Mukherjee to cut a record USD 97 billion government borrowing, and streamline taxes and push sales of state firms and a 3G mobile phone licence auction to bring in billions of dollars.
Instead, the 74-year-old Congress party stalwart may ignore all that and produce a simple statement of accounts on February 26. It would send a signal Congress increasingly broadcasts in its second term don't rock the boat.
It underlines that while Prime Minister Manmohan Singh preaches reforms, pressure from Congress rank and file to focus on social programmes combined with Mukherjee's own reputation as a safe, if uninspiring, pair of hands may overshadow any vision.
"This is a government that really does not have a mission," said DH Pai Panandikar, head of the private think-tank RPG Foundation. "It is reactive. Don't expect vision in the budget."
But one senior government official cautioned that the budget speech was not yet written, and there were some signs of pressure for the finance minister to present a more reform-driven budget.
"People are trying to persuade him (Mukherjee) to go beyond an AFS (annual financial statement)," the official said.
The budget could push new social programmes such as offering subsidised wheat and rice to the poor. Another programme, the rural employment guarantee scheme that provides jobs for millions of villagers, costs India about one percent of GDP.
With little will to cut spending, government borrowing may remain at a record Rs 4.51 trillion (USD 97 billion) and possibly put further pressure on interest rates.
The government debt-to-GDP ratio is just under 80%, almost double the norm for emerging Asian markets.
"Clearly there is a concern in the market over the political constraints," said Vineet Malik, head of interest rates at HSBC India.
It should not have been like this.
In Congress's first term, the communist parties it relied on for parliamentary support were blamed for the government's slow progress in liberalising Asia's third-largest economy.
Since its election win, those communist shackles have disappeared. But Congress, which oversaw a heavily state-run economy for decades after independence in 1947, now seems prisoner to its leftist roots despite flirtation with reform under Singh.
The government's first deficit-laden interim budget in July, just after its election victory, disappointed many investors with a 36% spending hike funded by record borrowing.
With the opposition organising protests in numerous states against food inflation at an 11-year-high, the federal government is under pressure from Congress party stalwarts to tone down hikes in state-regulated fuel and food prices.
"The budget will signal how Mukherjee balances the economic needs of the government with the political agenda of Congress," said Delhi-based political analyst Mahesh Rangarajan.
The government's recent decision to delay the launch of its first genetically modified (GM) vegetable was also criticised as pandering to its farmer voter base rather than science.
Reform? No thanks
At the crux of the problem, though, is that Congress may just not have its heart in market reform.
"The problem was never the communists. The problem was within Congress itself," said Jahangir Aziz, a JP Morgan economist in Mumbai. "There is no real consensus within the party on these issues.
Mukherjee is a wily old-timer who is one of the most powerful men in India. He knows how to balance the competing needs of India's 28 disparate states -- a complex cauldron representing 1.2 billion people and a myriad of castes and ethnicities.
"The finance minister is not gung-ho about liberalism. He's the old school of Congress," said economic analyst Paranjoy Guha Thakurta. "He believes that India's socialist past was not an unmitigated disaster."
There have been some initiatives, including announcing more sales of stakes in state companies and a streamlining of taxes.
Mukherjee is also no reckless fiscal populist. He is reported to be pushing the delayed 3G auction for this fiscal year that could raise more than $7 billion for his strained accounts.
"They don't have political will to do anything," said Surjit Bhalla, head of Oxus Investments in New Delhi, referring to efforts to cut spending and borrowing.
"But they will pay more than lip service. They have become disciplined by markets. Mukherjee knows he faces a double whammy of higher borrowing and the RBI (central bank) if nothing gets done."
And if anything is going to get done, 2010 is the year.
It will be perhaps the only time that Congress has almost no important state elections to worry about. In 2011, there will be elections in two key states, West Bengal and Tamil Nadu, further adding populist pressures on the government in Delhi.
But with the economy possibly growing 7 percent this fiscal year, policies to make the Asian giant reach the kind of growth seen in rival China appear to play second fiddle to short-term political needs.
"As long as the economy grows at more than 7 percent, Mukherjee will be happy," said Aziz. "He doesn't have the 9 percent vision like the PM has."