The fiscal deficit would be targeted at 5.5 per cent of the GDP from the current 6.1 per cent for which revenue increases would be sought and certain sectors, such as insurance, may be opened up for limited foreign participation, it said.

"With elections to four states scheduled in November, the budget will not announce any major steps to reduce fertiliser and food subsidies," it said.Additional revenues are expected by expanding the tax base, raising customs duties and tax rates for the affluent.

Due to the resource constraints, the government should lay down transparent policies to facilitate private-sector investments in the infrastructure sector, it said.

It further said that the government is likely to begin an aggressive public-sector disinvestment programme as in the interim budget. The finance ministerhas already indicated a target of Rs 500 crore.

Merrill said that the additional surcharge of 3 per cent on all imports would continue, while sector-specific protectionist measures, mainly in terms of rationalising tariffs on intermediate and final products as in the case of the capital goods industry, would be taken. "We believe that any increase in the customs duties would be more in order to protect the domestic industry rather than to raise revenues," it said.

Measures to kick-start the economy would be the biggest positive move auto-makers can expect as auto sales are highly correlated to economic growth, it said. A proposal to allow share buy-back should be positive for cash-rich companies, particularly for Bajaj Auto which retains shareholder approval to consider buyback, it added.

On the banking sector, it said that besides higher tax exemption limits for the housing sector, little impact is expected on the finance sector.

On the capital goods sector, the investment bank has said that duringthe last two years, the industry's performance has been severely affected by the economic slowdown, but it does not foresee any dramatic concessions to the industry given the indications received from the recent Exim policy.

The consumer non-durables industry would witness a buoyant phase due to the sops expected for the agriculture sector. Excise duties are likely to remain stable while levy of a tax surcharge would be negative as most sector companies are high tax payers, it said.

Customs duty hike would be particularly negative for Cadbury and Reckitt as these companies are big importers, it said.

On the oil sector, Merrill Lynch has said the excise tariffs would be modified more or less in line with the recommendations of the expert group.

"However, we believe the government is likely to reduce the subsidies on kerosene and LPG as recommended by the expert group," it added.

The firm predicted a reduction in the excise duty on polyester to boost demand. "We expect a 2-3 per cent reduction in theexcise duty on PFY and no changes in the excise duty in other polyester and polymer products," it added.

On the pharma sector, the report predicted a reduction in the customs duties of bulk and laboratory chemicals from 32 per cent to 25 per cent.

The software services sector may witness two important decisions: A policy to list shares overseas with dual convertibility options and permission to offer ADR options to non-resident employees.