Bangalore: Finance Minister Pranab Mukherjee faces a tough job July 6 as he rises to present the first budget of the newly-elected United Progressive Alliance (UPA) government, during which he will have to try and keep fiscal deficit under check while meeting the many promises made by the Congress party and its coalition partners during the elections.

The exercise will also be a complex mix of populism and pragmatism since it comes at a time when the global economy is still in the throes of a recession. Mukherjee's task has been rendered more difficult with international crude prices climbing once again.

Crude prices are ruling at nearly $70 a barrel, putting pressure on the government to raise fuel prices. Even though the new government would not like to start its tenure by hiking prices of petrol, diesel or cooking gas, history could repeat itself.

When the previous UPA government took office in 2004, it began its tenure by jacking up rates of these key fuels. The then petroleum minister, Mani Shankar Aiyar, had proposed a band mechanism to reduce price volatility but this could not be implemented owing to world prices shooting up.

This time, oil prices have soared at an even worse time when the world is in the midst of a recession. The finance minister thus has to deal with several factors linked to the external environment. Rising fuel prices, for instance, means the oil import bill is going to shoot up this fiscal.

In addition, exports have slumped owing to declining global demand for goods. The dip in exports has in turn affected employment in many sectors such as gems and jewellery, handicraft and textiles - all labour-intensive areas where thousands of artisans have been left jobless.

Finally, he has to tackle the slowdown in the economy across all sectors as a result of global recessionary trends hitting India's shores from last September.

From a high-growth economy rising at nine percent annually, the country's gross domestic product (GDP) expansion rate dipped to 6.7 percent last fiscal, although a comforting factor is that India remains one of the fastest growing economies in the world.

One of the fallouts of lower growth is that customs and excise revenues have dipped, making it more difficult for the government to balance the budget.

On the plus side, Mukherjee will be helped by the fact that economic growth in the January-March quarter was 5.8 percent, the same level as in the previous quarter. This was much higher than had been expected by most experts.

So a glimmer of light does appear on the horizon.

Industrial output has stopped falling. Farm output has also been rising though there are fears about production levels this year owing to the less than normal rainfall predictions made by the Met Department.

Even so, output in the country's granary states of Punjab and Haryana may still not be much affected if the rains come by early July. Agriculture still remains critical for the Indian economy as rural demand provides the big push for growth.

Stock markets also have been buoyant ever since the new government came to power. The bullish trend is largely due to expectations that it no longer has to rely on support from the Left to survive and can therefore go ahead with more economic reforms.

Unfortunately, these expectations may not be met once the budget is presented because Mukherjee has to take into account the needs of average citizens while formulating his proposals.

But progress is definitely expected in one area that had been completely stalled during the past five years: Divestment of equity in state-run enterprises.

This had been kept in cold storage in the previous regime because of staunch opposition by the Left. Now, however, several public sector companies are preparing to go ahead with public issues to mop up funds from the market.