There is a huge expectation of tax cuts, particularly for the lower middle class, after Prime Minister Narendra Modi invoked the Goddess of wealth for elevating the poor and middle class. "I pray to Goddess Lakshmi that the poor and the middle class sections in the country are blessed by her," PM Modi told reporters a day before the Union Budget's presentation.

There may be concessions for the middle class, which is pinning hope on a reduction in income tax rates, along with a hike in standard deduction. Under the old tax regime, the basic income exemption limit is set at Rs 2.50 lakh, while for those opting for the new tax regime, the limit is fixed at Rs 3 lakh.

With the Economic Survey seeking financial inclusion for rural households and small businesses as a priority area, Ms Sitharaman may announce easier access to credit through microfinance institutions, self-help groups and other intermediaries.

A significant investment in infrastructure is needed over the next 10 years to achieve India's development goals. While there are varying estimates on the exact amount needed, there is general agreement that current spending on infrastructure must increase to meet these goals. Ms Sitharaman may make some major announcements on this point.

Revisiting tariff structures to support domestic manufacturing and reduce dependency on imports while helping manage exchange rate pressures are likely. Government infrastructure spending has been crucial to India's strong growth in recent years, even though the Rs 11.11 lakh crore outlay for the current fiscal will likely fall short by one-fifth.

There is a very strong likelihood of Ms Sitharaman announcing policies and initiatives to accelerate progress in the field of artificial intelligence (AI), a topic that also occupied a major part of the discussions at the World Economic Forum meeting in Davos recently. China's highly efficient yet pocket-friendly AI model DeepSeek has started a global race to develop better AI models.

Economists expect the Union Budget will unveil tariff reforms and consider a concessionary tax rate for new manufacturing facilities in India, both of which would address emerging global challenges but could have mixed implications for the domestic economy. Lower tariffs, for example, could hurt protected industries, but cut costs for manufacturers that use imported inputs. Low corporate taxes could limit room for funding programmes to boost consumption, but encourage investment in manufacturing, Reuters reported.

A decision likely to be taken with an eye on US policies is some sort of corporate tax relief. With President Trump promising lower corporate taxes in the US, economists expect India and other markets will in turn be pressured to keep corporate taxes low, lest the US undercut them in attracting global manufacturers. India lowered its corporate tax rate sharply in 2019 to 22 per cent from 30 per cent, in the hope of spurring investment, although analysts say it has mainly just boosted corporate profit margins without spurring new investments or jobs.

Many analysts agree on one thing - the government will continue on the path of fiscal consolidation, with a projected fiscal deficit of 4.5 per cent of the gross domestic product (GDP) for fiscal 2026 against 4.8 per cent ending on March 31 this year.

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