India to exceed debt-sale target as fiscal gap out of control

Sep 29 | Updated: Sep 30 2008, 07:32am hrs
India will overshoot its borrowing target this fiscal year by almost a fifth as the government spends more to win voters before elections due in seven months, economists say.

Asia's third-largest economy will sell more bonds and bills than planned to honor commitments to pay higher salaries, guarantee new jobs, write off farm loans and subsidize energy costs, according to a Bloomberg News survey of 10 traders and economists. The government, which kept planned debt sales within its budget target in a schedule published last week, is likely to boost the amount in the months ahead, all 10 respondents said.

"The fiscal situation is out of control,'' said Prasanna Ananthasubramaniam, a fixed-income analyst in Mumbai at ICICI Securities Ltd., a unit of India's biggest bank by market value. "The government hasn't raised the borrowing target but it will still have to boost bond sales to meet the wage hikes, subsidies, loan waivers and job guarantees.''

India plans to raise as much as Rs 39,000 crore ($8.32 billion) from debt sales in the second half of the year ending March 31, 2009, the finance ministry said on September 26. It didn't schedule any debt auctions for the final quarter of the fiscal year for the first time since it started publishing a sale calendar in 2002.

The government will exceed the six-month target by 71% as it adds auctions from January to March, raising a total Rs 67,000 crore for the half-year period, according to the median estimate in the survey. That would increase the amount raised for this fiscal year to Rs 1.73 lakh crore, surpassing the target of Rs 1.45 lakh crore.

The South Asian nation sold Rs 10,000 crore of bonds on September 26 at an unscheduled auction, adding to concern it will overstep its borrowing target.

"Last week's unexpected auction announcement will bring to the forefront concerns regarding the deteriorating fiscal health of the government,'' said Vikas Agarwal, a fixed-income strategist in Mumbai at JPMorgan Chase & Co., the third-biggest US bank.