NEW DELHI: India's central bank Governor Duvvuri Subbarao said government borrowings may rise "slightly" in the next financial year sending bond yields higher.

"In gross terms, the borrowings might be slightly higher because of redemptions," Subbarao said in a conference call from Chennai, three days after he described the government budget deficit as a "bigger risk" to the economy than food  price inflation or a surge in capital inflows.

Fitch Ratings today maintained India's foreign and local currency rating at BBB-, its lowest investment grade, citing a "deterioration" in public finances. Finance Minister Pranab Mukherjee estimates budget deficit will widen to 6.8% of gross domestic product (GDP) in the year ending March 31, the highest in 16 years.

"We could be encouraged to downgrade if we see further fiscal slippage," said Andrew Colquhoun, director at Fitch's Asia-Pacific Sovereign Group in Hong Kong. "If we see a strong rise in yields for the local currency debt or that banks aren't able to step up and buy the debt the way they have traditionally done, again that would be negative."

"If the government borrowing happens to be higher, of course, there will be pressure on yields," Subbarao said.

Mukherjee, who is scheduled to unveil the government's next budget on Februaru 26, has vowed to cut the fiscal deficit to 5.5% of GDP in the financial year starting April 1.

The budget deficit widened after Prime Minister Manmohan Singh's government borrowed a record Rs 4.51 trillion ($97.3 billion) this year to protect the nation's economy from a global recession.

Subbarao said today India doesn't require fiscal stimulus anymore to support growth as companies and consumers step up spending. The government has room to start withdrawing the fiscal stimulus, Subbarao said.