By Reuters

New Delhi: India will borrow an extra $9.45 billion by late March from the market, an official said on Tuesday, sending bond yields higher and raising concerns about the state of public finances.

The extra borrowings are largely aimed at supporting the economy, which is expected to expand at its slowest pace in six years in 2008/09 as the global economic crisis takes a toll.

“We had discussions with the Reserve Bank of India. The borrowing will be between 20 Feb.and 20 March to the order of Rs46,000 crore (Rs460 billion),” Economic Affairs secretary Ashok Chawla told reporters.

He said the extra borrowing would be done in four tranches.

The government’s finances have deteriorated in 2008/09 due to increase in salaries of government employees, large subsidies on oil and fertilisers and waivers on loans for small farmers, prompting the government to borrow more from the market.

A slowing economy has meant that the government receipts have remained sluggish while it had to forego a substantial amount in duty which were aimed at boosting demand. The central bank said it would conduct the market borrowings in a non-disruptive manner.

The 8.24% federal bond yield jumped 17 basis points after the government’s announcement, before triming the rise.

At 0848 GMT, the 8.24% bond yield was at 6.44% after rising as high as 6.47% from 6.30% before the announcement. It had closed at 6.33% on Monday.

“Yields will move up now, but eventually come down along with the gradual completion of this fiscal year’s borrowing programme,” said Gopal Tripathi, a fixed income dealer at HDFC.

Anoop Varma, an associate vice president with Development Credit Bank said everyone would now want to sell on upticks unless there was a rate cut.

The Indian government will roll out a temporary budget on 16 February but its deteriorating public finances have already posed a concern for rating agencies.

Fitch Ratings affirmed India’s ratings on Monday but kept its negative outlook on the local currency rating, saying public finances will deteriorate due to a weakening economy and government stimulus measures.

Fitch forecast India’s general government deficit will reach 9.5% of gross domestic product in 2008-09, up from 6.1% in the previous year. The agency includes oil and fertiliser bonds in its estimates.

This is sharply higher than a central bank projection of around 7% of GDP and an estimate of 8% of GDP by an economic advisory council to the prime minister