India needs 450 billion rupees more to meet budget spending

New Delhi, Feb 17 (ANI): Economic Affairs Secretary Ashok Chawla has said that India plans to raise an extra 450 billion rupees in the 2008-09 financial year beyond additional borrowings already announced, but will not tap the markets for it.

He said converting intervention bonds into regular government bonds could be one option to raise additional funds.

"We are in consultation with the RBI. We will notify the manner in which that will be raised. But it will not be because we realise that there is the problem of how much the market can contribute and how much space should be available for others," Chawla said.

Chawla also ruled out privately placing government bonds with the central bank to raise the additional funds needed.

In its budget for 2009-10 unveiled on Monday, the government said its gross market borrowing for the current fiscal year ending on March 31 would be 3.06 trillion rupees, above total announced borrowings of 2.61 trillion rupees which included 460 billion of bonds sales announced just last week.

In the interim budget, the government said its fiscal deficit would widen to six per cent of gross domestic product in 2008-09, compared with its initial estimate a year ago of 2.5 per cent.

Market Stabilisation Scheme (MSS) bonds are used to absorb inflation-fuelling surplus cash in the banking system generated via the central bank's intervention in the foreign exchange market in the wake of strong capital inflows.

But foreign flows have slowed, and turned negative for equities, and the central bank has recently bought back MSS bonds ahead of their maturity to add to market liquidity and underpin demand for regular government bond auctions.

The government pays interest on outstanding MSS bonds but does not use the funds raised for spending.

There are 1.05 trillion rupees of MSS debt outstanding, including reasury bills. (ANI)