Indias finance ministry will start discussions on the budget for the year beginning 1 April on Tuesday, as a weak domestic and external economic environment threatens to crimp revenue and demands for increasing spending on socio-economic development programmes increases.

Union finance minister Pranab Mukherjee  will meet the financial advisers of different ministries on Tuesday to get information on expenditure demand for the rest of the current fiscal year.

After the meeting with the financial advisers, the inter-ministerial meetings on the next fiscal years budget will begin on Friday, according to a finance ministry official, who declined to be identified.

The budget is prepared by the ministry of finance broadly on the basis of detailed estimates of expenditure and receipts received from various government departments.

The budget-making exercise begins every year in the second week of September with the issue of budget circulars to all departments providing guidance in framing their revised estimates for the current year and the budget estimates for the next financial year.

October and November are devoted to follow-up action on the budget circular that includes coordinating with various ministries and departments, procuring data for the receipts budget, and scrutiny of the estimates framed by the ministries and departments for the pre-budget meetings.

Economists say the budget-making exercise for the next fiscal year will be challenging given the weakening growth momentum and high inflationary scenario in India as well as global uncertainties.

D.K. Joshi, chief economist at Crisil Ltd, said it will be a tough job for the finance minister to prepare for next years budget. Last years budget-making exercise was relatively easier because it was at the backdrop of healthy economic growth. This year, growth will be weaker, combined with a high inflationary scenario, he said.

While the Indian economy grew 8.5% in 2010-11, economic growth estimates by private agencies for the current fiscal year range between 7.2% and 7.8%.

Joshi further explained that the macro-level challenges will be far greater next year and the government has to put higher curbs on its expenditures. Unless issues regarding land acquisition and mining are sorted out, the growth potential will weaken further, he said.

M. Govinda Rao, director at the National Institute of Public Finance and Policy, said rationalization of expenditure will be a key challenge for the government next year.

While the governments expenditure on flagship schemes is increasing, capital expenditure, which helps create infrastructure, is suffering. With private investment demand falling, the government has to come up with an infrastructure investment plan for next fiscal, he said.

However, Rao said that while it is not yet clear whether government could achieve the 4.6% fiscal deficit target for the current fiscal year, achieving the targeted 4.1% deficit next fiscal may be more difficult.

Rao said tax on tobacco in India still remains much lower than the rest of the world and there is scope for increasing such taxes to boost revenue. He added that though there are too many items in the negative list in the proposed services tax reforms, it may bring substantial gains, if the government implements it.