Indian fiscal deficit set to rise

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India's government has said its budget deficit will surge this year, calling the situation "worrying".

The deficit is predicted to be 6% of the size of gross domestic product (GDP) to the end of March, far higher than the initial target of 2.5%.

For the 2009/2010 financial year it is set to be 5.5% of GDP.

The government has also unveiled its interim budget for 2009/10, aimed at taking care of spending during and after May's general elections.

This is a political budget but does not give much confidence on how it will help revive growth Rupa Rege Nitsure, Bank of Baroda

Indian stock markets extended losses by more than 3%, after the interim budget was unveiled.

"It did not contain policy response despite the challenging economic situation," said Jigar Shah, senior vice-president at Kim Eng Securities in Mumbai.

And chief economist of Bank of Baroda in Mumbai, Rupa Rege Nitsure, said it was a "political budget" which did "not give much confidence on how it will help revive growth".

'Additional measures'

In December and January Indian authorities unveiled two economic stimulus packages, including reductions in the country's main interest rate.

"Expenditure may have to be increased substantially if we are to give the economy the stimulus it needs to cope with the global recession," India's acting finance minister Pranab Mukherjee told parliament.

"There may be a need to consider additional fiscal measures when the budget is presented by the new government."

The government expects to report a 7.1% growth in GDP in the current financial year, forecasting it to be 7% in 2009/10, 8% in 2010/11 and 9% in 2011/12.

It added that the economy had enjoyed a "dream run" for the past several years, adding average annual growth had been close to 9% - "much faster than ever before".