NEW DELHI: Indian Finance Minister P. Chidambaram said Monday the government was working on “a credible and feasible” plan to reduce its yawning budget deficit, which has alarmed investors and ratings agencies.

“There is an imperative need for fiscal consolidation,” Chidambaram told reporters. “It is our intention to announce a credible and feasible path of fiscal consolidation beginning this year.”

The government's annual budget in March, which saw a deficit target of 5.1 per cent of gross domestic product for this year, has been hit by a slump in tax revenues caused by weakness in the economy and a surging subsidy bill.

In one of a string of recent measures designed to spur the economy and tackle government overspending, Prime Minister Manmohan Singh's cabinet announced a cut in subsidies for diesel and cooking gas.

“The reform momentum will continue,” Chidambaram pledged.

Investors have welcomed the recent reform measures announced by the government, with the stock market up nearly 10 per cent since the end of August.

Ratings agency Standard and Poor's warned in June that India could lose its investment-grade rating unless it took urgent action to balance its books and rein in public spending.

Chidambaram also said he expects economic growth to increase from the 5.5 per cent registered in the first fiscal quarter.

“There is no reason growth should stagnate at 5.5 per cent in all four quarters,” he said as he predicted a rise in investment.