Senior executives, equity analysts and brokers expect the budget for 2009-10 to serve up a fresh fiscal stimulus, composed of a new round of tax giveaways, and at the same time signal the governments intention to pursue reforms with renewed vigour, according to the Mint-CNBC-TV18 Budget Barometer, a survey conducted by market research firm Synovate.

While doing all this, the respondents expect the government to adhere to prudent fiscal management.

However, given the macroeconomic constraints on the economy, especially growing inflationary pressures and the dramatic rise in the governments gross borrowings, or fiscal deficit, the expectations of the 505 chief financial officers (CFOs), stock market brokers and analysts, who participated in the pre-budget survey, with respect to a stimulus package may be belied, triggering a potential backlash.

The Union governments fiscal deficit for 2008-09 is around 6.12% of the countrys gross domestic product. The aggregate deficit of the Centre and states together is close to 12% of GDP, among the highest recorded in recent times. The macroeconomic backdrop to the budget makes another round of significant tax cuts unlikely, economists said.

In my personal judgement, they cannot allow the fiscal deficit to go up significantly as they cant risk a downgrade by international credit rating agencies when foreign institutional investment has started coming in, Suresh Tendulkar, chairman of the Prime Ministers economic advisory council, said.

Currently, Indias credit rating is just one step away from junk status after Standard and Poors (S&P) in February lowered its outlook on the countrys long-term sovereign rating from stable to negative on account of the size of the fiscal deficit.

According to N.R. Bhanumurthy, professor at the Institute of Economic Growth, the institutes economic model puts the optimal level of fiscal deficit for the government at 5% of GDP. If the deficit exceeds 5% of GDP for a while, it would nudge up interest rates in the medium term, adversely affecting economic growth, he added.

As a macroeconomist, I feel there should not be a further fiscal stimulus.

Policymakers have to deal with another challenge. While headline inflation measured by wholesale prices declined 1.14% for the week ended 13 June, this trend is at odds with consumer price indices which have remained firm on account of the rising prices of foodstuff.

The monthly consumer price index for urban non-manual employees in April 2009 was 8.8%.

Given this, the expectations of industry and stock market representatives worrisome, not just because of a potential backlash if these are not met, but also because four out of 10 CFOs and six out of 10 analysts believe that their investment decisions for the rest of the year will be based on signals in the budget.

The survey was conducted for Mint-CNBC TV-18 by Synovate India and covered respondents across Mumbai, Delhi, Chennai and Bangalore between 8 June and 23 June.

On the reforms front, respondents expect the government to focus on disinvestment of its stake in state-owned firms, effect significant changes in rules regulating foreign direct investment, and announce a road map for implementation of a single goods and services tax (GST), which, as Mint has reported on 11 June, has run into some fresh roadblocks that could well delay its roll-out, scheduled for 1 April.

The executives surveyed also believe the budget will include significant changes in excise duties, direct taxes and sector-specific incentives.