NEW DELHI: India on Wednesday sought approval to spend an extra $10.7 billion in the year to end-March, including $2.5 billion for a fund it will use to partly pay for a new debt write-off plan for small farmers.

In a demand to parliament, the finance ministry said gross additional spending for 2007/08 would amount to Rs1.4 trillion, but of that Rs973.2 billion would come from savings by ministries and departments.

It is seeking a nod from lawmakers for additional cash spending totalling Rs430.6 billion ($10.7 billion), including Rs100 billion for the farm fund.

Gross additional spending will also be used to help bankroll food and fertiliser subsidies and issue or pay interest on various bond schemes, it said.

Analysts said much of the demand had been taken into account in the budget announced on Feb 29, but the finance ministry statement did shed some light on how it would fund the $15-billion debt waiver.

“The subsidy numbers are already in the fiscal arithmetic,” said Shubhada Rao, chief economist with Yes Bank, adding that detail on how the debt plan would be funded and the size of off-balance sheet spending on oil bonds was welcome.

When Finance Minister Palaniappan Chidambaram announced the debt plan for millions of small farmers, analysts interpreted it as an effort to woo a struggling community ahead of elections due by May 2009 but which many believe could come sooner.

It has been criticised by some economists, who say the plan could create a public finance headache for whichever government takes power after the polls.

Prime Minister Manmohan Singh has said state-run banks with bad farm debt on their books would be compensated when loans became due and funding would be through government revenues.

The government expects the federal fiscal deficit to fall to 2.5 per cent of gross domestic product in 2008/09, which starts on April 1, from an estimated 3.1 per cent this year.

The gross additional spending includes Rs90.76 billion for the latest tranche of oil bonds issued to state-run retailers, which are compensated by the government for having to sell fuel cheaply.

A further Rs38.37 billion was needed for further fertiliser subsidies and Rs58.24 billion for food subsidies, the finance ministry said.

Interest payments on market stabilisation bonds and those issued to oil companies as part of the compensation package would need an additional Rs84.76 billion.

Another Rs100 billion would be set aside for subscribing to a rights issue in leading lender State Bank of India, which is likely to close by March 18.

—Reuters