In yet another indication of his priorities for Budget 2007-08, Finance Minister P Chidambaram on Monday hinted at hard decisions on managing government expenditure.

"As we make further progress in fiscal consolidation, the softer options for scaling back committed expenditures or increasing revenues are getting diminished. We now have to take hard decisions to restructure certain expenditures, to choose between important but competing priorities for allocation of scarce resources and maximise available public resources by enlisting private resources wherever feasible," Chidambaram said.

The finance minister, who last week said the government planned to re-examine existing tax incentives, today said a major rebalancing was required to improve the composition of the public expenditure portfolio.

The comments came in the backdrop of an increase in non-Plan expenditure in the current financial year.

Chidambaram made these comments at a Defence Finance and Economics seminar in New Delhi on Monday, where he pointed out that the defence sector could emerge as one of the key growth drivers of the Indian economy, which grew at 8.4 per cent in 2005-06.

Terming the macroeconomic environment as "propitious", Chidambaram said high growth "has provided the government the opportunity to assess economic and fiscal challenges for improving the current growth rate and ensuring flexibility to work out a credible strategy for meeting the challenges of the economy."

In order to sustain and accelerate the growth momentum without compromising on macroeconomic stability, the finance minister said it was of utmost importance that the government continues on the path of fiscal consolidation.

Pointing out that the "virtuous cycle of savings, investment and growth" has enabled India to sustain high growth rates, Chidambaram said there was still some dis-saving on the government account to the extent of 2.2 per cent of the gross domestic product in 2005-06.