But it is hemmed in by a legal requirement to hold down the budget deficit on the one side and, on the other, by communist resistance to selling off state assets, especially to foreigners, and to allowing more flexibility in the labour market.
Analysts are keen to see how Finance Minister Palaniappan Chidambaram will balance these constraints.
"The budget should give a sense to the overall direction of reforms, both in terms of areas where the government intends to push forward aggressively as well as those where it is willing to compromise," said Sanjeev Sanyal, senior economist at Deutsche Bank in Singapore.
The 2005/06 rail budget announced in advance on Saturday dismayed some analysts, expanding concessionary fares and holding freight rates broadly flat despite the system's huge losses.
India's $600 billion economy is growing at nearly 7 percent this fiscal year, after a hot pace of 8.5 percent in 2003/04. But analysts say drastic improvements to its infrastructure, tax collection and public finances are needed if India is to achieve the double-digit growth that would make a difference to the poor.
The coalition has a band of reformers at its head, notably Prime Minister Manmohan Singh, the architect of changes in the early 1990s that steered India towards freer markets.
On Friday the nine-month-old government said in an annual economic report that India needed to cut wasteful spending and widen its tax base to include more of the booming service sector if it was to reduce the fiscal deficit.
Services are the fastest-growing part of India's $600 billion economy and account for about half of GDP but only 5 percent of total tax receipts.
The consolidated deficit of the federal government and the 29 states is equivalent to some 10 percent of gross domestic product (GDP). The central government deficit is forecast to be 4.4 percent of GDP in the fiscal year to March 31, 2005 and under a 2004 law is supposed to be reduced by 0.3 point of GDP each year.
The report called for the private sector to fund $150 billion in investment needed over the next decade to underpin long-term growth and proposed a review of foreign investment caps in insurance, coal, property and retail.
This is the coalition's second budget, following a hurried post-election one last July, and foreign investors have high hopes of the government's will to reform, judging by a net $1.9 billion poured into Indian markets since the start of January.