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

Policymakers say getting India's finances in order will give private players room to borrow and the confidence to invest.

A drop-off in investment, hurting growth, is blamed in part on public spending that is funded through market borrowing crowding out the private sector.

"With fiscal discipline, what will happen is that there will be larger money with the private sector, which can be used for the growth," said B.K. Chaturvedi, a senior adviser to the government on infrastructure spending.

Chidambaram will officially report the revised spending figures for 2012/13 when he presents next year's budget to parliament on Feb. 28.

"It is I who have done the math, the deficit will remain below 5.3 percent this year, next year it will be below 4.8 percent. I am not going to cross these red lines," Chidambaram told Reuters in an interview on Tuesday.

His attention has turned to spending because revenue has dropped. The economy is on track to grow about 5.6 percent this year, the lowest rate for a decade, and the government is struggling to raise $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 percent in the current financial year, but loosened the target in October. It was 5.8 percent in 2011/12.

JAVELIN SLOWED?

The impact of measures to cut bloated subsidies will mostly not be felt this fiscal year, which runs to the end of March.

"We are estimating a budget cut of 1.1 trillion rupees ($20.6 billion) 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 United States by at least few months.

... contd.

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