New Delhi, February 2
Finance Minister P. Chidambaram is putting welfare, defence and road projects on the chopping block in a last-ditch attempt to hit a tough fiscal deficit target by March, risking short-term economic growth and angering cabinet colleagues.

The cuts will reduce spending by about Rs 1.1 trillion (Rs 110,000 crore) in the current financial year, some 8% of budgeted outlay, or roughly 1 percent of estimated gross domestic product, two senior finance ministry officials and a senior government adviser told Reuters.

It is the first time the scale of the cuts and details of where the axe will fall have been made public, with officials revealing startling details about delays to arms purchases and belt-tightening for politically sensitive rural welfare schemes in an election year.

Chidambaram has staked his reputation on lowering the deficit to 5.3% of GDP to improve the investment climate following ratings agency threats to downgrade to junk India's sovereign debt if action was not taken. After a series of investor-friendly reforms and small steps to reduce fuel subsidies, he has now turned firepower on big-spending colleagues, some of whom are pushing back, worried cuts will hit voters ahead of the general elections due in early 2014.

"Every ministry is affected by the budget cuts. We are trying hard to get as much money as possible," said a senior official in the road transport ministry, who declined to be named because of the sensitivity of the issue.

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

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

"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 February 28.

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

His attention has turned to spending because revenue has dropped. The economy is on track to grow about 5.6% 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% in the current financial year, but loosened the target in October. It was 5.8% in 2011-12. "We’re estimating a budget cut of Rs 1.1 trillion 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.

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 ministry official said.

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. — Reuters 

Mumbai, February 2
The Reserve Bank of India plans to introduce three to four gold-linked products in the next few months, in an effort to bring 20,000 tonnes of gold held in households into the banking system, but the measure is unlikely to cut bullion imports sharply, a senior official said.

India is the largest importer of gold, which is its second biggest import item after oil and contributes around 10% to the total import bill.

Large gold imports are a worry for the government and the central bank, with the current account deficit shooting to a record high in the September-quarter, pressuring the rupee and adding to inflationary pressures.

The RBI plans to mobilize the unused gold by lending it to importers and exporters of the yellow metal, in a move it hopes will bring down the demand for physical gold.

It wants banks to encourage products linked to accepting physical gold as deposits and investing public money in gold related products, and extend loans against gold as collateral.

Indians own about 20,000 tonnes of gold, or three times the holdings of the US Federal Reserve, in jewellery, bars and coins.

"Overnight there won't be any reduction in imports, but people need to be made curious about new products," the RBI official with direct knowledge said.

"The main conduits of gold imports are banks, forming 50-60 percent of the total imports and supplies to jewellers. The way banks are suffering from huge NPAs (non-performing assets), this is a good product to work on."

The RBI is likely to release its final report on issues related to gold imports and gold loans mid-next week, the official said.

The RBI is designing products that could replace physical gold demand to yield similar returns, with easy liquidity, and documentation. Indian banks' total gold loans are worth Rs 1 trillion. Manappuram Finance and Muthoot Finance, two of the top gold loan financing institutions, together have loan books of Rs 500 billion, the official said, indicating a large business opportunity. — Reuters

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Chandigarh, February 2
Buoyed by the success of its Jaipur chapter in making deep in roads in the business community there, the Punjab and Chandigarh chapter of The Indus Entrepreneurs (TiE) is all set to take to the countryside. It now proposes to start promoting rural entrepreneurship in the region.

TiE, a global body of entrepreneurs that energizes entrepreneurship development, will be fostering entrepreneurship spirit in Punjab’s villages. So far, TiE has largely remained urban centric. The local chapter will set up a special interest group from amongst its members to start mentoring young rural entrepreneurs and help them set up small rural ventures in the services sector.

Partap K. Aggarwal, the newly elected president of TiE’s Punjab chapter, said there was an untapped entrepreneurial spirit in rural areas as well as among women of Punjab. “Because of many innovations in IT, it has become easier for the rural youth to go in for entrepreneurship in villages. We’re particularly looking at mentoring and developing entrepreneurship among those willing to offer services in education and healthcare, while using basic IT,” he said, adding TiE will be using the business to consumer approach.

Aggarwal said with TiE’s Jaipur chapter roping in traditional jeweller families and providing them mentoring, the Punjab chapter will also be focusing on family-owned business enterprises and help them grow. “The aim is to revitalize the entrepreneurial spirit in Punjab. With job opportunities shrinking everywhere, we have decided to mentor those considering setting up their own business ventures,” he said.

Aggarwal said TiE was also looking at opening mentoring clinics in the state’s engineering colleges. “Though some engineering colleges, including the state-run ones, have set up entrepreneurship development centres, these have failed to take off because of lack of mentoring by industry doyens. We’ve formulated a plan wherein each TiE member (all leading industrialists themselves) will be adopting a college and help the youth,” he said. — PTI