Union Budget: Desperate on deficit, govt to set to slash defence and welfare spending
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"The Indian army would be hit hard due to budget cuts," said the official, noting that a defence deal worth more $12 billion for procuring 126 jet fighters from France's Rafale was already delayed by at least three months.
Up to $4 billion will be lost at the rural development ministry, which has the largest budget after defence, hitting spending on roads, housing, and the government's flagship rural job-guarantee programme, a senior official in the ministry said.
Top officials at the finance, transport, rural development ministries and a government body on spending said ministries were likely to get 20-30 percent less funds for assets and projects such as roads, power, rural housing, jobs and shipping.
RISK OF DEEPENING SLOWDOWN
Critics warn that at a time of low growth, lower spending risks deepening the slowdown without helping the deficit-to-GDP ratio, a problem familiar to the austerity-racked economies of Europe.
Chidambaram's cuts mainly affect capital investment and he has avoided attacking government wage bills 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.