Union Budget: Desperate on deficit, govt to set to slash defence and welfare spending

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Chidambaram is putting big money guzzlers on chopping block to hit a tough deficit target. (AP) Chidambaram is putting big money guzzlers on chopping block to hit a tough deficit target. (AP)
SummaryChidambaram is putting big money guzzlers on chopping block to hit a tough deficit target.

and subsidy spending known in India as "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 Rahul Gandhi, the ruling Congress party's likely candidate for prime minister in next year's vote, 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.

Congress draws support from India's rural majority and a second-term victory in 2009 was partly due to a scheme guaranteeing work to the country's poor, along with a $13 billion farm debt waiver introduced by Chidambaram.

Abheek Barua, chief economist at HDFC Bank, India's second largest private lender, 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-planned expenditure such as subsidies," he said. "It also fails to address the supply bottlenecks leading to inflationary pressures."

The finance minister was backed by Prime Minister Manmohan Singh and influential adviser Montek Singh Ahluwalia in a series of meetings with government officials, two officials privy to the agenda of the meetings said. Congress party leaders have publicly given backing to fiscal consolidation in recent days.

Harvard-educated 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.

India 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. ($1 = 53.3950 Indian rupees)

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