New Delhi: India's Finance Minister Pranab Mukherjee said a wider budget deficit "right now" is critical to accelerate growth, justifying the record 4.51 trillion rupees (Dh339 billion) the government plans to borrow this year.

"It's a tremendous risk we have taken with the hope that the economy will turn around," Mukherjee told lawmakers in New Delhi today while urging them to pass the budget he unveiled last week for the year ending March 31. The lower house of parliament approved the budget with a voice vote.

Mukherjee is betting on faster economic expansion to raise tax revenues and step up allocations for roads and the poor, and trim the budget deficit in the coming years. Financial markets are concerned that government borrowings may leave little money for private companies for investments, with the key bond yield rising 19 basis points since the budget was unveiled on July 6.

"The huge borrowing required to fund the mounting fiscal deficit might crowd out private investment at a time when economic recovery sets in," said Kaushal Sampat, Chief Operating Officer at the Indian unit of Dun & Bradstreet Corp. "Monetary policy may have to be appropriately adjusted to take care of issues pertaining to fund availability."

The benchmark five-year bonds closed at 6.42 percent yesterday in Mumbai. The key Sensitive stock index, which has dropped 7.1 per cent since the budget, climbed 3.4 per cent to 13853.70 on Tuesday.

Mukherjee forecast higher spending on infrastructure and the rural poor will see the budget deficit widen to 6.8 per cent of gross domestic product in the year ending March 31, from six per cent in the previous year.

Mukherjee said the increase in the deficit won't "elbow out" borrowing needs of private companies, adding that the government "working in tandem" with the central bank will ensure enough money is available with the nation's banks.