Govt to cut wasteful expenditure: Chidambaram

The UPA government is keen on cutting down wasteful expenditure, but it would ensure that its key social welfare programmes are protected from any such budget cuts, finance minister P Chidambaram said today.

''We must have a budget that emphasises fiscal consolidation and incentivises savings, promotes investment and cuts out wasteful expenditure,'' Chidambaram told a television channel in Tokyo, where he is attending the IMF-World Bank meet, along with Reserve Bank of India governor D. Subbarao.

While the government has pegged the fiscal deficit for the current financial year at 5.1 per cent, many feel the minister will find it difficult to keep the deficit within that range. Last month, the government raised the price of diesel and cut the supply of subsidised cooking gas – restricting it to just six cylinders a year for consumers – to reduce its subsidy burden.

Asked about the possibility of India's rating being downgraded, Chidambaram said he was ''absolutely certain'' this would not happen. Standard & Poor's has already warned that the sovereign credit rating could be cut to junk grade in two years if the government did not initiate steps to reduce the fiscal deficit.

Referring to the growing calls for a cut in interest rates, Chidambaram said rates must come down. It would be good if the RBI takes monetary policy action on the basis of the fiscal policy steps that the government had initiated, he added. The RBI will be releasing its second quarter review of the credit policy on 30 October.

Addressing a meeting of the IMF, the finance minister noted that capital flows to emerging economies remained volatile and global commodity prices were also ruling high. ''The sharp rise in global food prices is another major challenge that many emerging economies may have to contend with,'' said Chidambaram. ''Global commodity prices, particularly energy prices, pose a major risk to growth and inflation.''

Inflation in India had remained above the comfort zone of the central bank and to check the demand side pressure it has kept the key policy rate unchanged at eight per cent since April, added the minister. ''However, in order to ensure that credit flows to productive sectors of the economy, the RBI has been managing liquidity actively. In the near-term, inflation is expected to remain sticky,'' he added.