Federal finances are under strain mainly because of high fuel subsidy bill and the expected shortfall in government share sales target of 400 billion rupees ($8.14 billion) this fiscal year.

Slowing economic growth and rising interest in the face of high inflation also put pressure on New Delhi’s finances.

India’s fiscal deficit during April to August was 2.74 trillion rupees, government data showed on Friday, against the budgeted target of 4.13 trillion rupees for the current fiscal year.

Net tax receipts were at 1.45 trillion rupees and total expenditure was at 4.72 trillion rupees.

“It will not be a surprise if the fiscal deficit goes up a little bit to 4.8 percent of GDP this year as the actual growth will be much lower than earlier estimates,” said N R. Bhanumurthy, senior economist with National Institute of Public Finance and Policy, a Delhi based policy think tank.

The government spooked investors on Thursday with its plan to borrow an additional 528 billion rupees in the second half of the current fiscal year, significantly higher than expectations, to make up for a shortfall in a government scheme for small savers, sending bond yields and swap rates sharply higher.

However, it said the new borrowing figure does not change its deficit target of 4.6 percent of gross domestic product for this fiscal year ending in March 2012.

Many analysts say India is on course to breach its fiscal deficit target.

Standard Chartered expects India’s fiscal deficit to hit 5.4 percent of GDP for this fiscal year, it said in a note after Thursday’s borrowing announcement.

“Till now, the government has not factored in any shortfall in revenues or increase in expenditure. Once these are accounted for, we expect a fiscal deficit for FY12 of 5.4 percent of GDP.”

Some analysts believe the government may be forced to borrow even more.

“We expect a fiscal deficit for FY12 of 5.4 percent of GDP to translate into another 400-600 billion rupees of market borrowing in the remainder of FY12,” the Standard Chartered note added.