India will increase market borrowing by 1.3 percent in the next fiscal year, disappointing bond investors, as it counts on a surging economy and a partial rollback of stimulus measures to cut its fiscal deficit.

Bond markets reversed earlier gains on worries over the government budget's plans to increase market borrowing, and some watchers said India missed an opportunity to take more aggressive fiscal measures.

Finance Minister Pranab Mukherjee rolled back some tax incentives implemented to help tide the economy through the worst of the global downturn, and outlined plans to bolster agricultural output.

Gross borrowing for the new year will total 4.57 trillion rupees ($99bn), slightly below a poll forecast for 4.61 trillion rupees and above the expected 4.51 trillion rupees in the current fiscal year.

“The government missed the opportunity of fiscal timing despite growth being on a strong trajectory,” said Robert Prior-Wandesforde, HSBC senior Asian economist in Singapore.

“Given that the fiscal stimulus withdrawal was not strong, the Reserve Bank of India may have to be more aggressive in its policy tightening,” he said.

The central bank is widely expected to raise interest rates at its next quarterly policy review on April 20.

India's economy grew six percent in the December quarter, short of a poll forecast of 6.8 percent as farm output fell 2.8 percent.

Mukherjee said the fiscal deficit will decline to 5.5 percent of GDP in the new year, from 6.9 percent this year, slightly lower than a reporters poll forecast of 5.6 percent. The deficit figure was slightly better than forecasts and in line with government expectations.

Expectations for robust economic growth in the new fiscal year will help India reach its deficit target without making tough decisions to cut spending.

“The first challenge before us is to quickly revert to the high GDP growth path of nine percent,” Mukherjee said in a budget speech to parliament that was interrupted by loud protests from opposition lawmakers.

High food prices have helped push broader inflation to what some economists expect could hit 10 percent next month.

Mukherjee is counting on surging economic growth, which his ministry forecasts will grow by 8.5 percent in the next fiscal year, as well as higher revenues from sales of government company stakes and 3G mobile licences to forestall the need for politically unpopular spending cuts.

The government growth target for next year exceeds the eight percent forecast in a poll of economists in late January.