MUMBAI, Feb 26 (Reuters) - India will increase market borrowing by 1.3 percent in the next fiscal year to a record level, as it counts on a surging economy and a partial rollback of stimulus measures to cut its fiscal deficit.
Following are the key budget proposals and their possible implications:
For highlights, see [ID:nINBUDGET]
The government revised its fiscal deficit forecast for 2009/10 to 6.9 percent of GDP from 6.8 percent, and said this would be cut to 5.5 percent of GDP in 2010/11.
The government will borrow a record gross 4.57 trillion rupees ($98.8 billion) from the market in 2010/11, higher than the current year’s 4.51 trillion and in line with a median estimate of 4.61 trillion rupees in a Reuters poll.
Analysts said managing borrowing in 2010/11 will be more challenging than in the current year, as the government’s cash levels were low and the central bank has limited tools to help with the ramped up borrowing in 2010/11.
Further, analysts said the government seemed to be relying on economic growth to help lower the debt-to-GDP ratio, and had offered little detail on how it will meet its longer-term targets. With 2010/11 borrowing to kick off early in April, there is not much breathing room for the bond market.
The finance minister said there was a need to accelerate the pace of policy reforms, including in the financial sector, to make the economy more competitive.
Analysts said the government was counting on a strong economy, which the ministry forecasts will grow by 8.5 percent in the next fiscal year, and higher revenues from stake sales and 3G mobile licences to forestall the need for spending cuts.
The government plans to raise 400 billion rupees in 2010/11 from stake sales, up from 250 billion estimated for 2009/10.
The budget proposed investment of 1.7 trillion rupees on infrastructure in the financial year beginning April. Investment on new infrastructure projects had been hit by the economic slowdown, which had crimped the earnings of the firms.
Spending for road transport has been raised by 13 percent to 198 billion rupees and doubled for the power sector to 51.30 billion rupees.
Higher investment on construction of roads, ports, bridges and airports should benefit engineering companies such as Larsen & Toubro (LART.BO), GMR Infrastructure (GMRI.BO), Jaiprakash Associates (JAIA.BO) and Gammon Infra (GAIN.BO).
The budget proposed providing 165 billion rupees for the recapitalisation of some state-run banks to help maintain their financial health.
The budget proposed raising the minimum alternate tax for companies to 18 percent from 15 percent, while partially rolling back earlier excise duty cuts on cement, cement products and large cars.
Maruti Suzuki (MRTI.BO), India's top car maker, said it would raise prices between 3,000 rupees ($65) to 13,000 rupees across various models, with immediate effect, soon after the budget proposal on excise duty. ($1=46.2 rupees) For highlights, see [ID:nINBUDGET] For full coverage of Budget 2010, click here (Reporting by Sumeet Chatterjee & Jeanette Rodrigues; Editing by Surojit Gupta)