Budget expected to cut deficit

India's annual budget on Friday is expected to slash the deficit as the economy rebounds,but investors were hoping FM will also be firm on keeping borrowing in check.

India8217;s annual budget on Friday is expected to slash the deficit as the economy rebounds,but investors were hoping Finance Minister Pranab Mukherjee will also be firm on keeping borrowing in check.

Economists polled by Reuters forecast Asia8217;s third-largest economy would cut its fiscal deficit to 5.6 per cent of GDP in the year starting April 1,from a target of 6.8 per cent in the current year,a 16-year high.

Government borrowing was forecast to rise by another 2.2 per cent to 4.61 trillion rupees 99.5 billion,according to the Reuters poll.

Indian federal bond yields rose late on Thursday after Planning Commission Deputy Chairman Montek Singh Ahluwalia said strong growth in 2010/11 could absorb higher borrowing,raising concerns that the government may be looking to tap markets for more than had been expected.

Calls for fiscal discipline have gained urgency as inflation is forecast by some economists to reach 10 per cent in coming weeks as high food prices fuel broader inflation expectations.

Finance Minister Mukherjee was expected to count on surging economic growth,which his ministry forecasts will grow by 8.5 per cent in the next fiscal year,as well as higher revenues from sales of government company stakes and 3G mobile licences to forestall the need for spending cuts.

The government growth target for next year exceeds the 8 per cent forecast in a Reuters poll of economists in late January.

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Mukherjee,scheduled to begin speaking at 11 a.m.,was expected to unveil gradual measures to roll back fiscal stimulus measures that were implemented to ease the pain of the global downturn,including tax breaks to several sectors.

He may also unveil plans to address shortfalls in food production and distribution that have been a key driver of inflation,as well as initiatives to address India8217;s chronic infrastructure deficit.