By Bibhudatta Pradhan and Kartik Goyal Oct. 22 (Bloomberg) -- India may fail to meet the budget deficit target for the year ending March 31 because of a global crisis that has forced the nation to borrow and spend more, Finance Minister Palaniappan Chidambaram said. ``The global financial crisis is exerting pressure on all economies and perhaps it's likely that we may overshoot the budget estimates,'' he said at a conference in New Delhi today. The government will strive to meet the target next year, he said. Chidambaram obtained the approval of both houses of parliament to spend an extra 2.4 trillion rupees ($49 billion) in the year to pay for food subsidies, a rural jobs program and to refund banks that waived farm debt. The additional spending will add to India's efforts to ease a credit crunch in the financial system and support economic growth. India's central bank cut interest rates Oct. 20 for the first time since 2004 and injected 1 trillion rupees effective Oct. 11 by cutting the amount of cash lenders musts set aside as reserves by 2.5 percentage points to 6.5 percent. Chidambaram had said yesterday the government will exceed its borrowing target for the first time in four years to pay for higher spending and shoring up economic growth. The budget deficit in the year to March 2009 is estimated at 2.5 percent of gross domestic product, Chidambaram had said on Feb. 29. Deficit Target ``We will do our best to bring it as close to the target as possible,'' Chidambaram said today. ``Even if we don't achieve the targets by March 2009, I'm sure we can achieve it by March 2010.'' The global financial crisis has led to the collapse of Lehman Brothers Holdings Inc. and Washington Mutual Inc. in the U.S., three banks in Iceland and subprime-related losses of about $660 billion. Chidambaram said India had successfully overcome its liquidity crisis through steps taken in a 14-day period starting in the first week of this month. The steps were triggered by the credit squeeze that began in the middle of September, he said. The success of the measures was borne out by banks not seeking funds at the repurchase auctions today. Chidambaram said more steps would be taken on liquidity and inflation as needed and that Prime Minister Manmohan Singh, a former central bank chief, was fully involved in all decisions. Trimming Costs The world's largest banks and securities firms are trimming costs to survive the credit-market meltdown that forced Merrill Lynch & Co. to sell itself to Bank of America Corp. The financial-services industry has cut more than 140,000 jobs since a surge in subprime mortgage delinquencies began to roil global debt markets in 2007. The Indian government will help seven state-run banks raise their capital adequacy to 12 percent against the central bank requirement of 9 percent, Chidambaram reiterated in parliament today. None of the nation's banks has a capital adequacy level of less than 10 percent, he said. The finance minister told lawmakers today not to worry too much about the decline in the stock market. The benchmark Bombay Stock Exchange Sensitive Index has declined 50 percent this year, with overseas funds having sold about $12 billion of local equities compared with a record net purchase of $17.2 billion last year. This was because overseas funds were under redemption pressure in their home countries, the minister said. Growth Estimate Chidambaram reiterated that the country's economic fundamentals were strong and that the worst estimate for economic growth this year was 7 percent, which would maintain India's position as the second-fastest growing major economy. The minister said inflation will slow as commodity prices decline. Inflation slowed more than economists expected to a four-month low to 11.44 percent in the week to Oct. 4 from a year earlier after gaining 11.8 percent in the previous week, the government said on Oct. 16. India's budget deficit in the first five months of the year that started April 1 reached 88 percent of the annual target, or 1.16 trillion rupees ($24 billion), compared with the full-year target of 1.33 trillion rupees, the Controller General's office said. The deficit is the amount the government needs to borrow to bridge the difference between spending and non-debt receipts. Chidambaram didn't give details on how much more the government would borrow. India had said in February it would borrow 1.45 trillion rupees in the year to March 31. The government will raise as much as 390 billion rupees from debt sales in the second half of the year, the finance ministry said on Sept. 26, having borrowed 1.06 trillion rupees in the six months to Sept. 30. The government, which started publishing its borrowing calendar in 2002, last exceeded its bond-sale target in the year ended March 31, 2005. To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Kartik Goyal in New Delhi at kgoyal@bloomberg.net.

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