Out of the Rs 10,20,838 crore the Centre will spend on in 2009-10, the largest will be on interest. Budget papers show, the government?s interest costs are estimated to rise by 17% in 2009-10 to Rs 2,25,511 crore in this fiscal, up from Rs 1,92,694 crore in 2008-09, mainly due to the massive rise in market borrowings.

This also means the government is not managing its finances well. In 2009, inflation has dipped by 800 basis points. Lower inflation means there should be lower yields on government papers, which in turn means better price for the papers. But as the higher outlay on interest means that has not happened. This could have happened if the government had set in motion the formation of an independent debt management office, which had been promised in budget 2008-09.

This is therefore one of the reasons government?s fiscal deficit, which represents the gross excess of expenditure over revenues, is projected to jump to 6.8% of the gross domestic product (GDP) in 2009-10, up from the revised estimate of 6.2% in 2008-09.

As a result, the Centre?s gross borrowings are estimated to rise to Rs 4,51,093 crore in 2009-10, up from Rs 3,06,000 crore in 2008-09. These funds will be needed to finance expenditure that for the first time will surpass Rs 10 lakh crore. The net borrowings excluding of repayments are pegged at Rs 3,97,957 crore in 2009-10.

Sections in the market welcomed the continuation of the fiscal stimulus in this fiscal, although many people were disappointed the government hasn?t presented a medium term fiscal consolidation programme.

Financial markets tumbled on the news of a bloated borrowings plan that will be needed to fund the deficit. The 30-share Sensex ended down 5.83% at 14,043.40 points on Monday. Yield on the most traded 6.07% 2014 government bond was at 6.46%, up from Friday?s close of 6.23%. The rupee closed at 48.46/47 per dollar, weaker than 47.89/91 per dollar at close on Friday.

At a post Budget press conference on Monday, finance secretary Ashok Chawla said the government will ensure the borrowings happen in a non-disruptive manner.

The government will finalise the borrowing plan with the Reserve Bank of India, which may need to conduct open market operations (OMOs) for as much as about 50% of gross borrowing, he said. The RBI conducts OMOs to support bond market and to infuse liquidity into the system ahead of a government debt sale.

Chawla also attacked the critics who argued that government didn?t articulate a medium term fiscal consolidation plan.

?There is no denying that the fiscal deficit has widened. But to say that the road map has not clearly spelt out is wrong,? he said. As per a statement tabled in Parliament, required under the Fiscal Responsibility and Budget Management Act 2003, the fiscal deficit has bee targeted at 5.5% in 2010-11 and 4% in 2011-12.

?So, we have not chosen unrealistic target of 2.5% or 3% because it will be very difficult to come from a situation of 7% and go to 2.5%. But the intention and the resolve of the government is very clear that the situation of high fiscal deficit is not something which is sustainable in the medium to long term and therefore we need to roll back but the roll back will be over a period of time table,? he asserted.

Finance ministry chief economic advisor Arvind Virmani said the fiscal deficit was a big stimulus to the economy and industry. Including oil and fertiliser bonds, the fiscal deficit stood at 8% in 2008-09, Chawla said.

He said the outlay this year on these two counts will be minimal, which will help in containing the fiscal deficit at 6.8% in 2009-10.

?This year we don?t anticipate any bonds the fertiliser ministry is given money through Budget. We have provided for that subsidy in terms of cash. It?s about Rs 50,000 crore,? the finance secretary said.

On oil bonds, Chawla said, ?There were some Rs 10,000-crore of bonds, which were spilled over from last year, and we have already settled that in the first quarter. Beyond that there is no demand for oil bonds, so therefore the 6.8% deficit is the actual deficit and there are no bonds or off-Budget item as of now.?

Minimal outlay on bonds and any disinvestments proceeds that may come would help the government in tiding over the deficit. The government has not accounted for any amount from stake sales in public companies in its receipts.

Prime Minister?s Economic Advisory of Council former chairman C Rangarajan said, ?The Budget is very much on the expected lines. It has to perform a difficult balancing act between high expenditure and borrowings. The fiscal deficit of 6.8% is slightly above the comfort level. Nevertheless, the Budget has balanced the two objectives.?

Finance minister Pranab Mukherjee said in Parliament on Monday that the government will pursue disinvestment-except in banking and insurance sector-but did not account for any of the divestment proceeds in the Budget estimates for 2009-10. However, Rs 35,000 crore are expected from auction of 3-G spectrum airwaves this fiscal.

The government?s total expenditure for the first time will surpass the Rs 10,00,000-crore mark in the current fiscal, a rise of 36%. While the plan expenditure for 2009-10 was increased by 34% to Rs 3,25,149 crore, the non-plan expenditure has shot up by 37% to Rs 6, 95,689 crore, which is 68.2% of the total expenditure.

The finance minister has made a heroic assumption that total subsidies will be lower at Rs 1,11,276 crore, which is 13% lower than that of 2008-09. The total revenue receipts are estimated at Rs 6,14,497 crore in 2009-10, up from Rs 5,62,173 crore in 2008-09. The remaining expenditure will be financed through borrowings. Due to the persisting downturn, the gross tax receipts have been Rs 6,41,079 crore in 2009-10, down from to Rs.6,87,715 crore in 2008-09 budget estimates.

The non tax revenue receipts are pegged estimated at Rs 1,40,279 crore in 2009-10, up from Rs.95,785 crore in 2008-09.