India said on Friday it would auction 390 billion rupees ($8.4 billion) of bonds between October and mid-December, meaning it will reach its 2008/09 gross market borrowing target in the third quarter of the fiscal year.

The finance ministry did not detail any auctions beyond one scheduled to be held between Dec. 5-12, but analysts said the government would end up tapping the markets for more than the 1.45 trillion rupees it had forecast in the budget for 2008/09.

"By finishing the borrowing programme by the middle of December the government is leaving itself enough room to borrow extra," said A. Prasanna, economist at ICICI Primary dealership in Mumbai. "The calendar is clearly negative for bonds."

The government will hold auctions for 100 billion rupees of bonds between October 3-10, October 17-24 and Oct. 31-Nov. 7, the indicative borrowing calendar released by the ministry showed. There will be further auctions of 60 billion rupees of bonds between Nov. 14-21 and 30 billion between December 5-12.

The government had already added an extra auction to the schedule for the first half of 2008/09, but the 100 billion rupee auction on Friday was not fully covered by market demand and primary dealers had to cover the shortfall. The benchmark 10-year bond yield jumped after the auction result, ending at 8.59 percent.

Including Friday's auction, the government has borrowed 1.06 trillion rupees in the first half of 2008/09, against an original target of 960 billion rupees for the six months to Sept 30. In February's budget, the government had set a gross borrowing target of 1.45 trillion rupees in 2008/09, lower than 1.56 trillion in 2007/08. It also aimed to cut its fiscal deficit to 2.5 per cent of gross domestic product from 3.1 percent in 2007/08, but slowing growth and rising spending have raised doubts on that target.

Analysts have said a larger-than-expected pay rise for government workers that will cost 221 billion rupees in 2008/09 and a farm-debt waiver could push the deficit beyond the target. "The extent of fiscal gap will depend upon revenues that may come in through 3G auction fees and disinvestment proceeds," said Shubhada Rao, chief economist at Yes Bank in Mumbai. "At this point in time however, there is no clear indication of the timing and magnitude of these revenues to come in."

The government hopes to raise up to 400 billion rupees from an auction 3G spectrum this year, and some state-run enterprises are considering initial public offerings. Finance Minister Palanippan Chidambaram has said he had factored in the pay rise for government employees when preparing the budget, and that it would not cause the fiscal deficit to overshoot the target.

India has been on a drive to clean up its public finances and cut its budget deficit. But rising fuel and fertiliser prices have pushed up subsidy costs, and a government panel has warned of serious risks from growing off-budget liabilities.