The Indian government will be able to finance its deficit comfortably, Goldman Sachs said

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in a note, adding that India's net borrowing

in the coming fiscal year will likely be lower than that in the current year.

Finance Minister Pranab Mukherjee will unveil the federal budget on Friday, which will contain fiscal deficit and borrowing targets for 2010/11, eagerly awaited by a bond market that's already fretting about a possible interest rate hike next year.

"We think the government will be able to finance its deficit comfortably, due to a lower above-the-line fiscal deficit and aggressive disinvestment," analysts Tushar Poddar and Pranjul Bhandari wrote.

There is still room to buy back bonds through open market operations (OMO), they said, adding that the government will be able to earn at least $12 billion via stake sales in state-run firms over three years.

Goldman expects the federal fiscal deficit to come down by 1 percentage point to 5.3 percent in 2010/11 from a projected 6.3 percent of GDP in 2009/10.

The government will gradually wind down its growth-supporting stimulus over the 2010/11 financial year beginning on April 1, but will still need to borrow a record amount from the market, a Reuters survey of economists showed.