Encouraged by early tax receipts, FM P Chidambaram said on Tuesday the government would meet its 2006/07 fiscal deficit target of 3.8 per cent of gross domestic product.

Last week, official data showed the country's deficit for April and May stood at Rs 720.88 billion-or 48.5 per cent of the full-year target of Rs 1.49 trillion in the first two months of the fiscal year.

"We should be able to be within our target," Chidambaram said when asked if huge spending plans threatened government finances.

"It is good that spending is happening. We are not unhappy about it. Increased spending will mean more money in the system," Chidambaram said.

The government expects the fiscal deficit in 2006/07 to be 3.8 per cent of gross domestic product, down from 4.1 per cent the previous year.

Only about 3 per cent of India's more than a billion people pay taxes despite a rapidly growing economy. But this financial year, India expects tax collection to grow by an ambitious 21 per cent to Rs 3.27 trillion.

Analysts said ministers would have to continue efforts to improve public finances.

"The government needs to be disciplined about its finances after having won some credibility following its commitment to fiscal consolidation in the 2006/07 Union Budget," according to Rajeev Malik, economist with JP Morgan Chase in Singapore.

"Indeed, fiscal slippage will undermine the government's emphasis on improving its finances, and could prompt unfavourable comments from credit rating agencies," Malik said in a research report.

International rating agencies and multilateral institutions cite India's large fiscal deficit as a barrier to sought after double-digit economic growth.

Chidambaram, who earlier met top tax officials, said the government was committed to widening the tax base and urged people to pay their taxes.

"We have no intention of harassing or squeezing anybody. We have information that a large number of people are either not paying taxes or not filing returns. Sooner or later will reach them," he said.

Tax authorities are looking to monitor people buying expensive items in a bid to track down dodgers.