"red line" set at 4.8 percent of gross domestic product this fiscal year.
"We've issued austerity instructions, it will bring us some savings," he said.
The finance minister's vow to contain the deficit means there will be little room ahead of a tough election to spur growth, which has slumped from a double-digit pace in early 2010 to below 5.0 percent, its lowest in a decade.
The government recently introduced a plan to distribute cheap food for two-thirds of the population, a step widely seen as wooing voters ahead of the election. But - without giving details - Chidambaram pointed to food subsidies as one area where spending would need to be addressed in coming months.
Along with pallid growth, Asia's third-largest economy is facing stubborn inflation, companies are struggling and bank asset quality is worsening. But Chidambaram shrugged off the risk of a cut in India's sovereign credit rating, which is one precarious notch above junk status.
"There is no case for a downgrade," he said in an interview at North Block, the sandstone colonial building that houses the finance ministry in New Delhi. "If any rating agency is looking for candidates to downgrade there are half a dozen other countries."
The Indian rupee was one of the hardest-hit emerging-market currencies recently amid alarm in financial markets about an imminent "tapering" of the U.S. Federal Reserve's monetary stimulus, falling by about 20 percent at one point from May.
It has recovered somewhat recently, and Chidambaram said the central bank may now be able to consider reversing some of the liquidity tightening steps it took to shore the currency up.
"If the volatility of the rupee has been contained and speculation has come to an end, the central bank may want to unwind some of the measures it took earlier, he said.
On Monday the Reserve Bank of India cut a key overnight interest rate, further dialling back an emergency measure it had imposed in mid-July in order to defend the rupee that had tightened market liquidity and pushed up borrowing costs.
Chidambaram said there would be some impact when the Fed's tapering - which was put on hold -