NEW DELHI (Reuters) - India's market will be able to absorb record government borrowing announced in the budget, Planning Commission Deputy Chairman Montek Singh Ahluwalia said on Saturday, despite an initial negative reaction from bondholders.
Ahluwalia, one of the country's most powerful economic advisers, said reforms such as opening up the insurance sector would pick up after a slow period in which the government has focused more on managing the impact of the global economic crisis.
"I think overall the debt we have in mind can certainly be absorbed by the market," Montek told Reuters in an interview.
"The fact that the absolute levels of borrowing is a little high shouldn't be allowed to distract the attention from the fact that as a percent of GDP it is actually reducing."
Finance Minister Pranab Mukherjee unveiled a $239 billion budget for the new fiscal year on Friday, partially rolling back a stimulus and counting on surging growth to help cut a fiscal deficit.
Mukherjee told parliament the government plans to increase market borrowing already at a record level by 1.3 percent in FY 2011, pushing bond prices lower as investors anticipated a flood of fresh debt supply.
Analysts said the borrowing plan cements the likelihood that the central bank will raise interest rates at its next meeting on April 20.
But Montek, Prime Minister Manmohan Singh's closest adviser on economic policy, said a planned cut in the fiscal deficit was more important than borrowing. The deficit is estimated to fall to 5.5 percent of GDP in the new year from 6.9 percent this year.
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