Govt tightens spending, sticks to borrowing target

India plans to cut some government spending to help fund drought relief and a rural job scheme and ensure that market borrowing will be within the government's annual target, senior officials said on Tuesday.

A global economic slowdown and then the worst dry spell in nearly four decades have raised concern the government may overshoot its 10 trillion rupees ($206 billion) spending plan for 2009/10 (April/March), leading to higher borrowing.

But senior finance ministry officials said the government would stick to its record borrowing of 4.51 trillion rupees for the current fiscal year, and could even end up borrowing less if it cuts down on unproductive expenses. Late on Monday, the finance ministry said every government department will have to cut spending on costs such as domestic and foreign travel and office expenses by 10 per cent.

"I have suggested that at least 10 per cent of non-plan expenditure should be reduced. Of course, I have excluded security, defence and certain operational costs," Finance Minister Pranab Mukherjee told a news conference. But Mukherjee said the government should not reduce spending announced since December to pump-prime the economy.

Growth in Asia's third largest economy fell to 6.7 per cent in 2008/09, from 9 per cent or more seen in previous three years. Policy makers expect it to be above 6 per cent in 2009/10. Worries of a rising deficit have pushed up bond yields, and the comment helped yields ease to 7.36 per cent from at 0945 GMT, off an early high of 7.38 per cent, but above Monday's close of 7.29 per cent.


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