INSTANT VIEW - Budget hikes spending, deficit 6.8 pct/GDP

NEW DELHI (Reuters) - The new government said it will hike spending to spur growth, pushing the 2009/10 fiscal deficit to a much higher than expected 6.8 percent of GDP, slamming local stocks and pushing bond yields higher.

Financial markets had been expecting the fiscal deficit in the 2009/10 budget unveiled on Monday to rise to as high as 6.5 percent of GDP, from a previous government target of 5.5 percent.

The government's gross market borrowing is expected to rise to 4.51 trillion rupees, versus 3.95 trillion rupees in a Reuters poll.

Finance Minister Pranab Mukherjee pledged the government would return to fiscal responsibility targets "at the earliest". He also vowed to return the country to a higher growth rate of 9 percent a year as soon as possible, from an estimated 6.7 percent in 2008/09.

Total spending in the 2009/10 budget will rise to 10.2 trillion rupees, up 36 percent from 2008/09.

India's BBB-minus sovereign rating, placed on negative outlook in February, does not face any significant rating pressure, Standard & Poor's analyst Takahari Ogawa said after the budget was released.

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