NEW DELHI - Finance Minister Nirmala Sitharaman cut income tax rates, expressed respect for "wealth creators" and announced an increase in spending on infrastructure to spur slowing growth in the world's fifth-largest economy.
The initial response to the Budget, however, was lukewarm at best with analysts expressing doubts over whether it would help turn around the economy.
The key Sensex index on Friday (Jan 31) fell at one point by 2 per cent to a three-month low although Ms Sitharaman maintained that the full impact of the budget would only be felt by Monday.
In a three-hour speech peppered with references to ancient Indian history and poetry, the finance minister stayed away from any big bang announcements, opting instead for an incremental approach.
She announced a government allocation of 1.7 trillion rupees (S$32.45 billion) for transport infrastructure, including for more highways, up 8 per cent from the previous year. The government also announced plans to build 100 new airports by 2024.
Promising to double farmers' incomes by 2022, the finance minister put aside 2.83 trillion rupees for the rural sector.
She also cut taxes for the middle class. Those earning between 500,000 and 750,000 rupees, for instance, will be taxed at 10 per cent annually, down from 20 per cent. But the new rates came with a catch as previous exemptions and rebates were dropped.
"This Budget is to boost the income of people and enhance their purchasing power," said the finance minister.
A 20 per cent dividend distribution tax, which businesses described as a burden, was abolished with Ms Sitharaman terming it as a "bold move meant to attract foreign investors."
"Wealth creators will be respected in this country... and this government assures taxpayers they will not be harassed," she said.
Prime Minister Narendra Modi said the budget would "boost incomes as well as demand and investment" and create jobs in sectors like agriculture.
India is in the throes of the worst economic slowdown in a decade. Unemployment is rising with reports of firms downsizing, daily wage labourers failing to get steady employment, and small and medium size enterprises in the doldrums.
On Friday, official data showed the economy grew by five percent last year, its slowest expansion since the 2008 global financial crisis. The government forecast growth at 6.0 to 6.5 percent for the next financial year in the annual Economic Survey which was published a day ahead of the budget.
Economists and analysts pointed out that the finance minister had limited space to manoeuvre due to fiscal constraints.
The fiscal deficit was 3.8 per cent for the financial year, which ends in March, and the figure is expected to drop to 3.5 per cent for the next year, according to the finance minister.
Said Mr Rishi Sahai, managing director of the investment bank, Cogence Advisors: "This is old wine in a new bottle. There is nothing new or exciting to get us out of the hole we are in. It will take more drastic and concrete measures but they don't have enough fiscal room to take bold measures and steps."
Others were likewise sceptical.
"We are passing through difficult times and it (budget) does not respond to the need for the times. The need was to spur the economy and anything that can help kickstart the demand side," said Prof Biswajit Dhar, an economist and professor at the Jawaharlal Nehru University.
Businessmen, though, welcomed the effort by the government.
"The Finance Minister had an extremely tight rope to walk, balancing a severely constrained fiscal space with the need for higher government expenditure for boosting investments and consumption. She has done well in addressing the key priorities," said Mr Vikram Kirloskar, president of the Confederation of Indian Industry.
He added the focus on the transport sector and railways would create jobs.
