Chidambaram confidently predicted on Saturday that he would be able to contain the deficit to 5.3 percent of GDP.

Traders, who had positioned for the government to borrow up to 400 billion rupees extra from the market, unwound some of their bets post the statement.

However, market participants await a solid action from the government to patch up the fiscal deficit given its plans, which relies mainly on the airwaves auction and share sale in state-run companies, seem to falter.

Ballooning fiscal deficit has increased the risk that credit rating agencies could downgrade India to junk in the coming months.

"Pressure on growth and political resistance to reforms will make things difficult to meet fiscal deficit target at 5.3-5.8 percent," said Moses Harding, head of asset liability management at IndusInd Bank.

These worries are amplified amid disruptions during the winter session of the parliament, which saw both houses adjourned for a third day over the government's move to open up multi-brand retail to foreign investors.

The benchmark 10-year bond yield ended 3 basis points lower at 8.20 percent.

Bonds are also supported as higher drawdown from repo borrowing is keeping open market expectations valid, traders said.

Repo borrowings from the central bank have remained above the 1 trillion rupee mark for the ninth sessions as of Monday.

India will also detail its July-September GDP on Nov. 30, which will be closely watched by investors to see whether the economy slows further.

The benchmark 5-year OIS rate fell 1 basis point to 7.17 percent, while the 1-year OIS rate was steady at 7.76 percent.  "The immediate attention is on OMO that provide support to bonds and arrest spike in OIS rates," Harding added.