India's forthcoming budget to be most austere in recent history

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P. Chidambaram P. Chidambaram
SummaryChidambaram is planning to cut public spending target for fiscal 2013/14 by up to 10%...

one of Chidambaram's lieutenants, adding that a downgrade would further dent corporate investment and hopes for an economic recovery.

The sources declined to be identified because the budget planning has not been been made pubic.

As Chidambaram prepares to tighten the purse strings, some government departments and ministries are bracing for funding cuts of up to 20-24 percent from their original 2012/13 targets, which could crimp plans for expansion of the defence forces, rail lines, highways and even development spending on tribal minorities.

"We are literally begging for funds," complained a senior official at the Tribal Affairs Ministry.

RAIL, DEFENCE CUTS

The proposed cuts will likely reduce the outlay for the Railways Ministry by more than $2 billion on top of the $1.8 billion cut it faced this fiscal year.

A senior official at the ministry said that, to compensate, the railways have been asked to raise rail fares and form joint ventures with state-run infrastructure companies.

The ministry needs at least $75 billion to complete ongoing projects related to laying new track, modernising services and improving safety, which are already 10 years behind schedule.

For their part, Defence Ministry officials are worried that budget cuts may delay some important arms procurement plans, as well as a $6 billion project to raise a new battalion on the border with China. The ministry's budget was cut by $1.9 billion in 2012/13.

Chidambaram has promised to achieve a fiscal deficit of 5.3 percent of GDP this fiscal year and 4.8 percent in 2013/14, targets he calls 'red lines' that cannot be crossed. Late last year, some economists were predicting that the budget deficit this year could be closer to 6 percent.

Despite his austerity drive, Chidambaram - seen by some as a potential candidate to become prime minister in 2014 - has not lost sight of politics ahead of the looming elections.

Officials say he will use the spending cuts to make headroom for the rollout of a proposed food security law. A populist bill that will expand supply of cheap grain for the poor is likely to be implemented this year at a cost of $22.27 billion to the exchequer.

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