The announcement led the stock market to rise to a new high.

P Chidambaram, the finance minister who unveiled the budget on Tuesday, also eased limits on foreign investments in Indian debt. He also allowed Indian mutual funds to invest more overseas.

But he made no announcement on opening new sectors to foreign investment, apparently bowing to pressure from leftist allies in the government.

Still, business leaders and investors welcomed the budget, which proposed no new taxes and kept income tax rates unchanged.

The benchmark index of the Bombay Stock Exchange - the 30-share Sensex - closed 0.9% higher at 10,370.24 points.

The budget seeks to reduce the deficit to 3.8% of gross domestic product in the new fiscal year, which starts on 1 April, from an estimated 4.1% this year, banking on hopes that a booming economy would bring in enough revenue to offset the cuts in import and excise duties.


Standard & Poor's, an international rating agency, welcomed the stance of the government, and said there would be "upward pressure" on India's bond rating if the targets are met.

Chidambaram (L), the finance
minister, presented the budget

After presenting the budget to parliament, Chidambaram said: "The signal we give to the world is that we remain committed to the path of fiscal prudence, liberalisation, reforms and opening up."

The duty cuts, coupled with higher investment spending by the government, will sustain India's economic growth, which has averaged close to 8% in the past three years, he said.
Business leaders were pleased.

Tarun Das, an official at the Confederation of Indian Industry, the country's biggest business lobbying group, said: "This budget takes us forward." 

The finance minister "has covered everything that drives growth, that drives development," he said.


Among other goods, small cars and soft drinks will become cheaper, as will some plastic products, packaged food and cancer drugs, as a result of the reduction in excise and import duties. The 5.64 trillion-rupee ($125 billion) budget also allocated more money for education, health and rural employment programmes.

Chidambaram said: "The big idea behind this budget is raising growth rates and helping agriculture."

Both have been a drag on the growth of the broader economy.

Manmohan Singh, the Indian prime minister, said the budget would "provide a big stimulus".

Defence spending has been increased to 890 billion rupees ($20 billion), up 7% from what the government is expected to spend in the current fiscal year.