The government expects a 25 per cent rise in overall revenue receipts to help curb its fiscal deficit -- one of the largest in the world -- but has also committed around $2.0 billion in new spending on health, education and employment in the July budget.

India's new Congress-led government has set a target of pruning the fiscal deficit to 4.4 per cent of gross domestic product from last year's 4.8 per cent.

"We are around 38 per cent of the fiscal deficit target right now. The fiscal deficit target will be met," Expenditure Secretary Dhirendra Swarup, who oversees the government's spending and borrowing, told Reuters in an interview on Tuesday.

Indian revenues have surged 13 per cent in the first six months ended September but analysts say the trend could reverse as the impact of an erratic monsoon and high oil prices sets in.

The government hopes measures such as a new tax on securities transactions, inclusion of more services under the tax net and netting of tax arrears will help curb the deficit.

"The impact of these new taxes will be felt only in the second half of this year as the budget was announced in July. I am sure the additional revenues will start kicking in now. Spending is also under control," Swarup said.

International rating agencies continue to express concern over India's combined deficit of union and state governments which stands at more than 10 per cent of GDP despite announcing upgrades to its foreign currency rating due to its improving external liquidity.

DEBT SWAP SCHEME

Swarup said the government's debt swap scheme, aimed at saving interest costs, would continue. Under the scheme, state governments will replace 400 billion rupees of high cost debt in 2004/05 with funds borrowed at current low interest rates.

Most of the 29 state governments are in a financial mess with the federal government often bailing them out as some of them even find it hard to pay their employees on time. The states are expected to tap the market for nearly 100 billion rupees in the rest of this financial year. It has borrowed nearly 140 billion rupees, so far, with the rest being met from the small savings fund.

Swarup said the government will stick to its borrowings plan but there could be some flexibility in the timing of the bond auctions depending on liquidity and the government's cash balance.

"Overall borrowing will remain the same. The borrowings schedule is only indicative. It will all depend on the government's cash position. There might be adjustments in the calendar."

The central bank recently cancelled sale of bonds worth 50 billion rupees as the government's cash position was in surplus on the back of increased revenues.

Swarup said the government continued to have a cash surplus of around 130 billion rupees on Nov 2 with the central bank.

The government has raised 840 billion rupees through market borrowings and private placements with the central bank so far in 2004/05 (April-March) which is more than 50 per cent of its budgeted gross market borrowing of 1,506.81 billion rupees.

High oil prices pushed inflation to a nearly three-and-a-half year high of 8.74 per cent in end-August. The rate has fallen since then but continues to hover above 7 per cent.

Analysts and research houses expect the economy --Asia's fourth largest -- to grow between 5.5-6.5 per cent in the fiscal year ending March 2005, slower than the earlier estimate of 7.0-8.0 percent due to poor rains and high global oil prices.