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 such as subsidies,” he said. “It also fails to a address the supply bottlenecks leading to inflationary pressures.”
The finance minister was backed by Prime Minister Manmohan Singh and Planning Commission deputy chairman Montek Singh Ahluwalia in a series of meetings with government officials, two officials privy to the agenda of the meetings said. Congress leaders have publicly given backing to fiscal consolidation in recent days.
Chidambaram has promised to provide enough funds for the government's flagship programmes — food security, rural jobs, village roads, health and education — in the Budget once he succeeds in improving the government deficit this year.
The government earmarked $97 billion for spending on such projects out of the $278-billion Budget for the current fiscal year.
The finance ministry has also imposed a ban on hiring in ministries, meetings at luxury hotels, the purchase of new vehicles and places some restrictions on foreign tours.