July 31, 1981

The West German Cabinet today approved a rough outline for the 1982 budget that foresees a possible drop in military spending after inflation is accounted for. Chancellor Helmut Schmidt attributed the decline to the impact of high interest rates in the United States. The Chancellor, announcing the budget figures at a news conference after an all-day Cabinet session, said the Defense Ministry budget would increase by 4.2 percent, roughly equal to the overall budget rise. If 5 to 6 percent inflation is subtracted, the real change in military spending could be a cut by as much as 1.8 percent.

BRIDGE By JENNIFER DUNNING THIS is the weekend to catch up on modern dance, and in the process get a bit of sun and air. A wide variety of modern-dance styles - and even a little traditional dance and ballet - will be offered in settings that are almost as varied, for one of the charms of modern dance is its adaptability to very different environments. Erick Hawkins will make a rare appearance in the New York area - at the Pepsico Summerfare '81 arts festival in the Center for the Arts at the State University of New York, at Purchase. There's no one quite like this modern-dance master, and the Purchase programs offer an opportunity to sample his distinctive style of flowing movement in handsomely designed and thought-provoking dances, the product of 44 years of exploring the idiom of American modern dance.

Stagehands have been busy at Central Park's Delacorte Theater, clearing the deck from ''The Tempest'' and setting up for ''Henry IV, Part I,'' the latest serving of free Shakespeare in the park, which begins previews tonight at 8 P.M. and runs through Aug. 30. The production is directed by Des McAnuff and features Stephen Markle, Kenneth McMillan, Mandy Patinkin and John Vickery. For the first two weeks in August, there will be performances nightly except Wednesday; in the last two weeks there will performances nightly except Monday. Tickets are distributed on a first-come basis on the day of the performance, starting at 6:15 P.M. The Delacorte is near the park entrance at Central Park West and 81st Street. The box office number is 535-5630.

The Senate today took its first action on proposed legislation, already moving through the House, to apply domestic borrowing ceilings to foreign investors when they are seeking control of American companies. The Senate securities subcommittee unanimously cleared a bill that would apply domestic margin requirements to the purchasers of more than 5 percent of an American company's stock. This bill and the nearly identical House legislation will be considered by full committees in September and move to the House and Senate floors later in the fall, Congressional aides reported.

Business leaders yesterday welcomed the passage of President Reagan's tax package with enthusiasm and excitement, describing it as essentially a ''revitalization'' of American capitalism. But their excitement was tempered slightly by a concern for the program's inflationary potential. Executives and economists noted that the fundamental redirection of the economy implied in the recovery program could easily be undermined if Government spending was not brought under control. In discussing the President's tax cut program, most executives cited the importance it placed on encouraging individual initiative. However, they disagreed widely over which of the legislation's farreaching provisions would have the deepest impact on the nation's economy.