"We must have a budget that emphasises fiscal consolidation and incentivises savings, promotes investment and cuts out wasteful expenditure," he told Bloomberg Television here yesterday.
However, he added the government's key social welfare programmes will be fully protected.
Chidambaram and Reserve Bank of India Governor D Subbarao are here for the IMF-World Bank meeting.
In the face of rising food, fertiliser and fuel subsidies, containing high fiscal deficit is a key challenge for the government.
Though the fiscal deficit target for 2012-13 has been pegged at 5.1 per cent of the GDP, economists feel that it may be difficult for the government to stick to the Budget estimates.
On the warnings by global agencies about the possibility of the country's rating being downgraded, Chidambaram said, he was "absolutely certain" that India's credit rating won't be downgraded.
Earlier this week, Standard and Poor's (S&P) had warned that India's sovereign credit rating may be cut to junk grade within two years if steps are not taken to check fiscal deficit and improve investment climate.
In the backdrop of a slowdown and demand for cut in interest rates, the Finance Minister said: "Rates must come down and if the fiscal policy steps that we are taking encourage the central bank to take monetary policy action which will result in lower interest rates, I think that will be good".
The RBI is scheduled to unveil its second quarter review of the credit policy on October 30 amidst expectations of cut in the benchmark interest rate. (MORE)