India unlikely to cancel bond auction even as cash pile grows: sources

A cashier counts currency notes inside a bank in Lucknow July 16, 2009.

MUMBAI (Reuters) - India is unlikely to cancel any of its two remaining debt sales this fiscal year as the government wants to keep open all of its options to fund its fiscal deficit, two officials with direct knowledge of the situation said.

Sticking to debt sales could dash recent market hopes the government would cancel at least one of the two upcoming auctions given the build-up in the government's cash balances with the Reserve Bank of India.

The inclination to go ahead with the combined 220 billion rupees in debt sales scheduled for the fiscal year ending in March is reinforced by a cash payout worth 250 billion rupees the government must make to oil companies over the next month and a half, the sources said.

Although neither the RBI nor the government revealed cash balance levels, analysts said recent spending cuts should have raised the amount of state money held with the central bank to around 800 billion rupees.

"Borrowing is linked to the deficit. There could be a temporary mismatch in cash balance. But that does not mean we will cut borrowing," said one official, who was not authorised to speak to the media and declined to be named.

"The decision to cut the borrowing depends on what happens to the deficit. Unless the deficit comes down, you cannot cut borrowing."

The government is scheduled to borrow another 220 billion rupees in two auctions by February 22.

($1 = 53.5450 rupees)

(Reporting by Rajesh Kumar Singh and Suvashree Dey Choudhury, additional reporting by Neha Dasgupta; Editing by Ranjit Gangadharan)