Reuters | New Delhi | Thu Feb 25, 2010 | 7:46pm IST

The government should start rolling back its economic stimulus and cap its debt, the finance ministry said on Thursday, forecasting economic growth in years ahead strong enough to make its fiscal targets look achievable. A day ahead of the annual budget, India proposed to more than halve its fiscal deficit to 3 percent of GDP by the year ending in March 2014 and said economic growth should reach 8.5 percent in the year starting in April and accelerate thereafter. “There seems to be a view that they can grow their way out of fiscal purgatory, rather than making large cuts to the absolute level of the deficit,” said Brian Jackson, senior emerging markets analyst with the Royal Bank of Canada in Hong Kong.

A government panel pegged the fiscal deficit for the next financial year at 5.7 percent of GDP, slightly higher than the 5.6 percent forecast by economists in a recent Reuters poll. Bond yields jumped late in the day after Planning Commission Deputy Chairman Montek Singh Ahluwalia said strong growth in 2010/11 could absorb higher borrowing, raising concerns that the government may look to tap bond markets for more than had been expected. The yield on the benchmark 10-year bond ended at 7.83 percent, up from Wednesday’s close of 7.80      Continue reading →