india's fiscal deficit for the year ending March 31, 2010, is expected to jump to 6.8% of the country's gross domestic product, Finance Minister Pranab Mukherjee said in his budget speech Monday, according to reports. The federal government's deficit is much higher than the 5.5% deficit forecast by Mukherjee in an interim budget in February, and also larger than the 6.2% deficit recorded by the government in the previous year ended March 31. Mukherjee's budget also provides tax relief to individuals, by raising the income-tax exemption limits and scrapping a surcharge on personal income tax. The 30-stock Sensex was down 2.9% at 14,487.37 following the budget announcement
Finance Minister Pranab Mukherjee said the fiscal deficit for 2009/10 was expected to rise to 6.8 percent of gross domestic product from 6.2 percent in the last fiscal year.
Markets had expected the government to announce a fiscal deficit of up to 6.5 percent of GDP as it ramped up borrowing to pay for additional spending.
Mukherjee, presenting the first budget after the Congress-led coalition was re-elected with a stronger mandate in May, outlined measures to speed up infrastructure development and proposed to increase spending for farmers and the poor.
"The real concern emerging from the budget is that it has not given confidence as to how the government will go about the fiscal consolidation process, after hiking the fiscal deficit target," said Rupa Rege Nitsure, chief economist at Bank of Baroda.
"While the thrust on agriculture, infrastructure, ecetera augurs well from the long-term growth perspective, the fiscal profligacy is quite obvious in the near term and hence the markets have also reacted negatively."
The main stock index fell as much as 5.1 percent after the finance minister ended his speech, after gaining more than 1 percent in morning trade ahead of the budget.
It later pared losses and was trading down 3.6 percent at 14,376.40 at 0733 GMT.
"The market is bothered by the increased expenditure, especially that for subsidies," said Nischal Maheshwari, head of research at Edelweiss Securities.
The partially convertible rupee fell to 48.50 per dollar, its lowest since June 26 and compared with Friday's close of 47.89/91. It was later trading at 48.3.
The yield on the benchmark 10-year bond was at 6.99 percent, 16 basis points above Friday's close.
Bonds had priced in expectations the fiscal deficit would widen to between 6.25-6.5 percent of GDP in the fiscal year ending in March 2010.
The government set the gross borrowing target for 2009/10 at 4.51 trillion rupees ($93.4 billion) above 3.95 trillion rupees forecast in a Reuters poll last week.
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