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Friday, February 26, 2010

Govt lifts borrowing in budget, bonds hit

The government will increase market borrowing by 1.3 per cent in the next fiscal year, disappointing bond investors, as it counts on a surging economy and a partial rollback of stimulus measures to cut its fiscal deficit.

Bond markets reversed earlier gains on worries over the government budget's plans to increase market borrowing, and some watchers said India missed an opportunity to take more aggressive fiscal measures.

Finance Minister Pranab Mukherjee rolled back some tax incentives implemented to help tide the economy through the worst of the global downturn, and outlined plans to bolster agricultural output.

Gross borrowing for the new year will total Rs 4,57,000 cr, slightly below a Reuters poll forecast for rs 4,61,000 and above the expected Rs 4,51,000 cr in the current fiscal year.

"The government missed the opportunity of fiscal timing despite growth being on a strong trajectory," said Robert Prior-Wandesforde, HSBC senior Asian economist in Singapore.

"Given that the fiscal stimulus withdrawal was not strong, the Reserve Bank of India may have to be more aggressive in its policy tightening," he said.

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