New Delhi: Policy-makers are likely to focus on government expenditure and rural revival in the upcoming pre-election year budget with the economy forecast to grow just 6.5 per cent this fiscal, the lowest since the Narendra Modi-government came to power more than three-and-a-half years ago.

Public spending is seen as slowing down, while consumer demand is tapering off in the current financial year - both signs of great concern in an emerging economy.

While the government's final expenditure, or government spending, is expected to grow 8.5 per cent in 2017-18 compared with 20.8 per cent last year, the private final consumption expenditure that reflects consumer demand is seen slowing down to 6.3 per cent from 8.7 per cent in the year before, according to GDP data released by the Central Statistics Office on Friday.

"A slowdown in government spending at a time businesses are wary of investing given the slowdown in consumer demand gives the economy fewer triggers to kick-start revival," said Pronab Sen, former chairman of the National Statistical Commission. "An increase in government spending is likely in the coming year," he added.

Unless demand picks up, it would be difficult to attract fresh investments. The only way to spark an economic revival, vital to the ruling coalition's election plans for 2019, would be increased public spending on infrastructure projects and the farm sector, which has reported extremely low growth despite a good monsoon.

Biswajit Dhar of the Jawaharlal Nehru University said, "The challenge before the government will be to pump-prime the economy to ensure growth by 7 per cent in the second half. We can see that private investment is not picking up. In such a situation, one would expect government spending on infrastructure picking up pace, which has not yet happened."

Industrial investment has been tardy through 2017. Credit growth has remained in single digits through the year with banking credit growth hitting a multi-year low of 6.8 per cent in the fortnight ended September 15, 2017.

Lack of demand and uncertainty over the new GST tax has lowered the appetite among Indian businesses for fresh loans. At the same time, banks, too, have been reluctant to lend, fighting as they are to recover an all-time high bad loan portfolio of Rs 9.5 lakh crore as of June 2017.

Infrastructure spending by the government is a classical Keynesian economic prescription for a slowing economy. Spending on building roads, dams and ports help to spur growth as it creates demand for steel and cement, besides jobs.

Finance ministry officials have in meetings in the run-up to the budget indicated that spending could be stepped up in key infrastructure sectors such as railways, transport and power in 2018-19, ahead of the general elections.

The advance estimates prepared by the CSO showed the farm sector growing just 2.1 per cent against 4.9 per cent last year, which implies growth dropped more than half. Manufacturing is similarly expected to grow 4.6 per cent against 7.9 per cent last year.

Economists say demonetisation saw large chunks of the small scale sector shutting shop with people losing jobs. Recovery, which started at the beginning of this financial year, was hit by the introduction of the GST with all its complexities and multiple rates. "The worst hit by demonetisation and GST has been the informal sector and this data really doesn't capture much of what happened there," Sen said.

Similarly, demonetisation dried up the cash flow in the rural economy, leading to lower prices and distress sales of crops, hitting farm production through the year despite good monsoons and adequate water supplies during the winter crop.

Analysts believe the farmer agitations and other rural-based protests, including caste-based ones, and votes against ruling parties have an economic underpinning as rural distress is coming out in the form of protests. The fact that rural Gujarat voted against the ruling BJP is seen as a direct result of the economic distress .

North Block officials said the budget meetings had noted the low farm growth figures and reports of farm distress. The outcome is that "it is likely that the outlays for rural infrastructure, including rural roads and housing, will go up incrementally and support for minimum support prices for grains and cereals will continue and go up in real terms".

However, the real challenge will be to "push spending by the government in a situation where the fiscal deficit is soaring and expected revenue collections are not coming through, especially on the GST front", Dhar pointed out.