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India to Borrow 3.7 Trillion Rupees in First Half of Next Year

India plans to raise 3.7 trillion rupees ($72.7 billion) from debt sales, or 65 percent of its annual borrowing plan, in the six months ending Sept. 30, Economic Affairs Secretary R. Gopalan said.

The government’s net borrowings in the first half of the financial year beginning April 1 will be 2.85 trillion rupees, or 63 percent of the total, Gopalan told reporters yesterday.

Finance Minister Pranab Mukherjee on March 16 projected record borrowing of 5.69 trillion rupees to plug a fiscal deficit estimated at 5.1 percent of gross domestic product in the year starting April 1. The Reserve Bank of India has flagged inflation risks from the shortfall, an oil-price surge and a weaker rupee, while signaling readiness to lower interest rates to bolster growth.

“Private credit demand picks up in the second half and the government wants to make sure companies are able to borrow” by making the bulk of its debt sales in the first half of the financial year, Shubhra Mittal, an economist at Kotak Mahindra Bank Ltd. in Mumbai, said before the data was released. Weekly debt sales in the period may be as much as 170 billion rupees, Mittal said.

The yield on the 8.79 percent note due November 2021 rose 3 basis points, or 0.03 percentage point, to 8.50 percent at close in Mumbai yesterday, according to the central bank’s trading system. The BSE India Sensitive Index gained 1.2 percent and the rupee strengthened 1.1 percent to 50.715 a dollar.

Deficit Pressure

In the budget, Mukherjee proposed to cap a subsidy program stretching from diesel to fertilizers and raised service and excise taxes, seeking to pare the widest fiscal gap among major emerging economies.

He estimated the deficit for 2011-2012 at 5.9 percent of GDP, wider than the 4.6 percent target set a year ago. Moody’s Investors Service, Fitch Ratings and Standard & Poor’s have cited public finances as hampering India’s credit rating.

India’s deficit target for 2012-2013 is “conservative and pragmatic,” Mukherjee told lawmakers in parliament yesterday, adding the nation can’t indulge in fiscal profligacy.

The central bank raised the repurchase rate by a record 3.75 percentage points from March 2010 to October last year, to 8.5 percent, to fight price increases.

Inflation in Asia’s third-largest economy was 6.95 percent last month, holding close to a 26-month low. It remains the fastest in the BRIC group, which also includes Brazil, Russia and China. India has the widest BRIC budget gap.

Economic expansion moderated to 6.1 percent last quarter, the slowest pace in almost three years, as costlier credit hurt consumer spending and dented investment.

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