Chidambaram vows to tackle higher subsidy spending

Finance minister P Chidambaram on Monday said the government will continue with its drive to rein in spending and cut subsidies to meet its fiscal deficit target.

Speaking to reporters on the eve of his departure to the US to attend the annual meeting of the International Monetary Fund (IMF) and the World Bank, the finance minister said the government would strictly enforce rules for fund utilisation in order to ensure restraint in spending.

While there is no move to announce spending cuts, Chidambaram said, he will not allow any relaxation in rules regarding fund utilisation despite the general election due next year.

India, Asia's third largest economy, is suffering its longest and deepest slump in at least a decade, and the government is racing to revive growth in a bid to return to power for a third consecutive time.

But, with the looming threat by global rating agencies to downgrade its sovereign debt to "junk" status, the government has no alternative other than strictly enforce austerity measures.

Chidambaram said he will not allow the deficit to cross the ceiling of 4.8 per cent of gross domestic product set for this fiscal year.

But, with the recently introduced food security programme of distributing cheap food to 65 per cent of the country's population driving up the government's subsidy bill, Chidambaram did not clarify how he planned to contain deficit at 4.8 per cent of GDP.

Chidambaram merely pointed to food subsidies as one area where spending would need to be addressed in coming months.

Meanwhile, the Indian rupee, one of the hardest-hit emerging-market currencies amid alarm bells of an imminent "tapering" of the US Federal Reserve's monetary stimulus, has somewhat stabilised after falling by about 20 per cent since May.

Chidambaram now hopes the Reserve Bank would be able consider reversing some of the liquidity tightening steps it took to bolster the currency.

The Fund-Bank meet is expected to discuss ways of addressing the current international monetary issues.

Chidambaram, who will meet US treasury secretary Jacob Lew on 13 October, is also expected to woo investors on the US West Coast during meetings with business leaders.