Defence, welfare & road spending to be slashed

Feb 01 2013, 09:02 IST
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Chidambaram's cuts mainly affect capital investment and he has avoided attacking government wage bills and subsidy spending.  (Reuters) Chidambaram's cuts mainly affect capital investment and he has avoided attacking government wage bills and subsidy spending. (Reuters)
SummaryThis will reduce spending by about R1.1 lakh cr in current financial year, 8% of budgeted outlay.

$10 billion in hoped-for windfall cash from partial privatisations and mobile spectrum sales.

The government had originally targeted a fiscal deficit of 5.1% in the current financial year, but loosened the target in October. It was 5.8% in 2011-12.

The impact of measures to cut bloated subsidies will mostly not be felt this fiscal year.

“We are estimating a budget cut of Rs 1.1 lakh crore as an outer limit. However, the final picture will be clear by March 15 when we have a clear idea about tax collections and the fuel subsidy bill,” said a senior finance ministry official, who declined to be named.

A senior official at the defence ministry — the world's biggest arms importer in recent years — said a $1.9-billion cut there could delay efforts to buy howitzer guns and Javelin anti-tank missiles from the US by at least few months.

“The army would be hit hard due to budget cuts,” said the official, noting that a defence deal worth more $12 billion for procuring 126 jet fighters from France's Rafale was already delayed by at least three months.

Up to $4 billion will be lost at the rural development ministry, which has the largest budget after defence, hitting spending on roads, housing and the government's flagship rural job guarantee scheme, a senior official in the ministry said.

Top officials at the finance, transport, rural development ministries and the Planning Commission said ministries were likely to get 20-30% less funds for assets and projects such as roads, power, rural housing, jobs and shipping.

Critics warn that at a time of low growth, lower spending risks deepening the slowdown without helping the deficit-to-GDP ratio.

Chidambaram's cuts mainly affect capital investment and he has avoided attacking government wage bills and subsidy spending or non-Plan expenditure.

Even so, powerful ministers have protested about the impact lower spending will have.

Jairam Ramesh, rural development minister and a close confidant of Congress vice-president Rahul Gandhi, wrote to Chidambaram asking for a review of the cuts to rural welfare.

“Both Prime Minister and you have spoken about the need for fiscal consolidation, but not at the cost of our social priorities,” a government source said, reading from the letter to the finance ministry.

Abheek Barua, chief economist at HDFC Bank, recognised the need to lower the deficit but said the cuts would hit the investment cycle and short-term demand and damage a drive to improve creaking infrastructure.

“Ideally the government should have cut non-Plan expenditure

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