India is one of the few countries who have recovered really strongly after the long recessionary period. India has recorded a 7.9% GDP growth in the second quarter of 2009 and for 2010 it as expected to grow at about 7.2 percent on an annual basis.

But still as the Finance Minister enters the final stages of the budget he might be facing quite a few challenges with respect to the fiscal state of the economy. India's recovery was primarily driven by the revival of demand in the domestic markets especially in the rural markets.

Key factors would also include the stimulus packages that were announced by the government to pump life into the economy, like lowering the excise duty and service taxes. In its latest monetary policy RBI has held rates and has only increased the cash reserves ratio to tap the liquidity in the markets.

However, the great matter of concern would be the fiscal deficit this year which hovers around 6.8% of the GDP, and rises to 10.3% if centre and state are combined.

The rising inflation rate at 7.8 percent is also a cause of worry as RBI's annual target is just 6-6.5%. The higher inflation rate is primarily driven by the rise in food prices.