Bloomberg News

Mukherjee Seeks Approval for $12 Billion Extra India Spending

November 27, 2011

Nov. 25 (Bloomberg) -- India’s Finance Minister Pranab Mukherjee sought parliament’s approval for additional spending in the current fiscal year, driving bond yields higher.

The ministry plans to spend an extra 631.8 billion rupees ($12.1 billion) in the year ending March 31, and will rely on internal accruals to meet 63.3 billion rupees of the expenditure, according to a statement in New Delhi today. Mukherjee declined to comment on how the remaining amount will be funded.

Indian 10-year benchmark bond yields have jumped 89 basis points in 2011, the most among the so-called BRIC nations, as government borrowings climbed and policy makers struggled to control inflation. India needs to cut its budget shortfall and check price gains to boost economic growth, Reserve Bank of India Governor Duvvuri Subbarao said earlier today.

“Today’s development makes it very clear that there is no way the government is going to meet its budget deficit target,” said Anubhuti Sahay, Mumbai-based economist at Standard Chartered Plc. “It’s going to put more pressure on bond yields in an already stressful market condition.”

She expects the budget gap to be 5.4 percent of gross domestic product in the fiscal year ending March 31, exceeding the finance ministry’s goal of 4.6 percent of GDP.

The yield on the 8.79 percent government security due November 2021 rose two basis points, or 0.02 percentage point, to 8.81 percent at the close of trading in Mumbai, while the rupee fell 0.4 percent to 52.2550 per dollar. The BSE India Sensitive Index declined 1 percent.

Mukherjee, who on Oct. 4 said that it may be hard to meet the deficit target, declined to comment today about whether the spending proposals will widen the deficit.

The minister sought extra funds to give 300 billion rupees to state-run oil companies such as Indian Oil Corp. for selling fuel below costs, according to the statement. Another 138 billion rupees will be extended to fertilizer companies as subsidy, and 38 billion rupees toward salaries of defense personnel.

The government on Sept. 29 raised its borrowing plan for the six months through March 31 by 32 percent to 2.2 trillion rupees.

--With assistance from Bibhudatta Pradhan in New Delhi. Editors: Cherian Thomas, David Merritt

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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