India's austerity push in a Budget to be unveiled on Thursday threatens to have the unintended impact of adding to inflationary pressure, hampering chances for rapid interest rate cuts that the government wants, RBI officials told Reuters.
New Delhi plans to cut public spending by up to 10 percent in the fiscal year starting in April, officials involved in the budget preparations told Reuters last week, as Finance Minister P. Chidambaram struggles to bring down the fiscal deficit to 4.8 percent of gross domestic product and stave off a credit rating downgrade.
Yet, officials in the Reserve Bank of India fear that cutting capital spending on projects with strong multiplier effects like building roads and bridges, won't help revive growth, which is seen as a priority if the economy is to avoid a downward spiral.
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