Indian Prime Minister Narendra Modi aims to reconnect with voters in the upcoming federal budget announcement, according to economic analysts. Expected steps include boosting jobs and incomes amid uneven economic growth and rising food prices. Modi's party did not secure a majority in last month's general election due to concerns over employment and the high cost of living, despite a strong Hindu nationalist campaign. To maintain power, Modi relies on support from the Telugu Desam Party (TDP) and Janata Dal (United), which control Andhra Pradesh and Bihar.

Finance Minister Nirmala Sitharaman will present the government's first budget of Modi's third term on July 23, offering insights into potential changes in economic policies. This budget will replace interim estimates for the fiscal year 2024/25, which began on April 1.

Analysts expect the budget to balance economic and political priorities. Shreya Sodhani of Barclays suggests that the government will use a $25 billion surplus from the Reserve Bank of India (RBI) and higher tax revenues to increase spending without expanding the deficit, which is targeted to remain at 5.1% of GDP. Over the past three years, government spending on long-term infrastructure projects has nearly doubled to drive growth and job creation. This year, planned spending on such projects is 11 trillion rupees ($131.61 billion), with potential additional support for manufacturing.

Nomura economists predict continued focus on domestic manufacturing, with increased local procurement requirements and extended concessional tax rates for new manufacturing facilities. Consumption-boosting measures, absent in the interim budget, may also be introduced, potentially including lower personal income taxes for some categories.

Political analyst Rasheed Kidwai notes that the middle class, a strong supporter of Modi, has not received significant relief in recent years, suggesting the time is right for government action. Additional state subsidies on rural housing and food are also anticipated.

However, the government's key allies are demanding $6 billion for their states, potentially prompting similar demands from others. Pre-election, states like West Bengal and Kerala, governed by the opposition, claimed they were shortchanged by New Delhi, which the federal government disputes. Kidwai warns that preferential treatment to allies could cause discontent.

One potential concession to states could be an increase in interest-free long-term loans for infrastructure projects, currently set at 1.3 trillion rupees, with Axis Bank predicting a 400 billion rupee increase.

Despite spending pressures, the government may maintain or lower its planned market borrowing for the year due to slow spending in the first half and strong tax collections. Gross market borrowing is expected to stay at 14.13 trillion rupees, with some economists anticipating a reduction of 400 to 500 billion rupees compared to the interim budget, according to JPMorgan estimates.