Union finance minister P Chidambaram on Monday outlined the contours of what Budget 07 may look like. Close on the heels of indicating moderation in tax rates and hitting out at tax exemptions, the FM stressed on taking hard measures to reduce expenditure.

"Soft options for reducing expenditures or increasing revenues are getting exhausted. We now have to take hard decisions to restructure certain expenditures. The government needs to stay steadfast on the path of fiscal consolidation and to achieve the FRBM target, the finance minister said at a global seminar on defence finance and economics.

Mr Chidambaram asked public sector units in the defence sector improve competitiveness by reducing costs and enhancing productivity. "The argument that the government must support loss-making undertakings or inefficient ordnance factories because of their strategic importance or surge capacities is difficult to sustain in an increasingly-globalised world with many more efficient alternatives," he said.

The minister's comments come in the context of the projected Rs 5,63,991 crore expenditure bill of the government for 06-07, which is 17% of the latest GDP figures, at current prices. The finance minister, however, held out the promise, that deficit reduction targets for this fiscal would be met. Pointing that the virtuous cycle of savings, investments and growth had enabled India to sustain 8%-plus rate of growth for nearly four consecutive years, Mr Chidambaram claimed higher growth would require more fiscal consolidation. This would free the credit space required to finance the growth of the manufacturing sector.

Mr Chidambaram said fiscal discipline meant eliminating non-productive expenditure and focussing on programmes to reduce inequalities, providing equal access to quality services in health and education and ensuring adequate electricity, safe drinking water and world-class roads and highways.

Favouring a greater role for the private sector in defence production, he said policy changes to allow them to play such a role had been put in place. The private-public sector linkages should enable scale-up of defence production and these spin-offs could see defence emerging as one of the key growth drivers in the country, he said.

On the same note, external affairs minister Pranab Mukherjee said that there has to be more involvement of private sector in defence production. Inaugurating the seminar, he said such synergies would create economic growth spirals, that could bring immense benefit to the social sector.