THE government will have to rein in spending and cut subsidies to meet its fiscal deficit target, the country's finance minister said on Monday, underlining that an austerity drive will not be blown off course by an election due next year.
P. Chidambaram said ahead of a trip to the United States - where one stop will be to woo investors on the West Coast - that he will not allow the deficit to cross a "red line" set at 4.8 per cent 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 per cent, 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 here.
"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 US Federal Reserve's monetary stimulus, falling by about 20 per cent 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. Reuters