Prime Minister Narendra Modi is under pressure to perform on the economy after a Budget packed with ambitious targets met mild scepticism from investors and credit-rating agencies and failed to dispel the latent risk of a downgrade.
With varying degrees of severity, Fitch, Moody's and Standard & Poor's all expressed worries that Finance Minister Arun Jaitley's pledge to keep this year's fiscal deficit to 4.1 percent of gross domestic product looked unrealistic.
While the Budget unveiled a number of measures to attract foreign investment, Jaitley's revenue and growth numbers were predicated on a major revival in private investment across the economy-one that is by no means guaranteed.
The finance minister seemed to recognise the risks to his own forecasts in an interview he gave state broadcaster Doordarshan after the budget speech, saying that the deficit target was a challenge he had accepted with a caveat.
"I have told the people that revenues are low, the monsoon is not extremely bright this time - the prospects ... therefore this is a challenging task," Jaitley said.
"I am accepting the challenge and I will endeavour."
AGENCY'S NEGATIVE OUTLOOK
S&P, the only one of the three main agencies that has India on a negative outlook, said that the sovereign debt of Asia's third largest economy could be rated "junk" within a year if the government fails to revive low economic growth.
Prior to Thursday's Budget announcement, Jaitley and Modi had created expectations of tough reform with warnings of "bitter medicine" and broadsides against "mindless populism". So there was some surprise that the budget chose not to rein in the subsidy bill that drives up the deficit.
"Mr Modi promised a bitter pill, but Mr Jaitley preferred to make it sweet," said B.B. Bhattacharya, a prominent economist.
Atsi Sheth, Moody's sovereign rating analyst, told Reuters: "The finance minister did say that we want to reduce fuel and food subsidies, but how exactly that will happen was not clear in this budget statement."
An electrifying election campaign by avowed moderniser Modi, followed by his landslide victory on May 16 triggered repeated record highs on India's stock exchanges. The rally seems to have ended, at least temporarily, with the Nifty down 3.8 percent this week, its biggest weekly loss in over nine months.
Jaitley, who worked closely with Modi to draw up a budget they see as a blueprint for future growth, based his deficit calculations on a 19 percent increase in tax revenue - an optimistic target given his decision to offer tax breaks to middle-class Indians.
If growth doesn't revive in the second half of the year ending March 2015, then there will have to be a "very concerted effort at expenditure reduction" or the fiscal deficit target will be "missed by a couple of decimal points", Sheth said.
Many market watchers think Jaitley missed an opportunity - both to take a tough stance on subsidies while the government's political stock is high at the start of its five-year term, and to create headroom for greater infrastructure spending.
Jaitley was widely expected to scrap the 4.1 percent fiscal deficit target set by his predecessor, who left a stack of bills he owed to state oil companies for unpaid subsidies. These have already eaten up almost half of the targeted deficit this fiscal year.
A day before the Budget, D.K. Joshi, principal economist at the Indian arm of S&P's, CRISIL, said he thought a target of 4.5 per cent of GDP was more credible.
Given its tight spending obligations, the government has increased its reliance on the private sector to revive growth, betting on public-private partnerships (PPPs) to expand the railways, gas pipelines, airports and roads.
Given over-capacity in Indian industry after the longest slowdown in quarter of a century, and a history of failed PPP projects over the past decade, many companies were reserved in their reaction to the budget.
"The investment cycle is something you can't just switch on overnight," R. Shankar Raman, chief financial officer at Larsen & Toubro, told Reuters.
Raman, whose company builds urban metro trains, engineering equipment and military equipment, said budget measures to allow more foreign investment in defence and a focus on infrastructure would help but said the government's overall increase in capital expenditure was low.
"Understandably so. Where are they going to get the money from?" Raman said. "My sense is the larger allocation will come in the 2015/16 Budget."
(Additional reporting by Tommy Wilkes and Rafael Nam)