Budget day is approaching and there are speculations and expectations in the air. Recently, the fertilizer prices were increased by the government indicting that it was keen on fiscal consolidation. There are positive expectations that the deficit this year will decrease.

There are speculations that Pranab Mukherjee, finance minister will rein in the deficits from a 16 year high. He is expected to do so by decreasing subsidies. Following this speculation, in the bond markets, the 10-year bonds had their biggest gain in the last one and a half month.

These bonds had earlier hit a 2 week low following the last week's government announcement that the urea prices will rise and price controls on fertilizers will be freed to reduce subsidies to pay its farmers. The expected deficit is to be narrowed to 5.5% of GDP from the new financial year, from last year's 6.8%.

Though most economists still believe that the final direction of these prices will wholly depend on the budget, but chances of an increase are high. The government is also expected to withdraw he stimulus package to boost economic growth.