Main measures

Deficit to be cut to 4.7% Defence spending up by 13.8% Foreign investment limit raised to 49% 120bn rupees from sale of state firms Import duties on farm products raised Interest rates on rural credit cut 15% special surcharge on cigarettes Corporate dividend tax halved to 10% Cut in excise duty on cars and two-wheelers Duty on telecoms and IT products reduced to 15%

Economists had been fearing harsh revenue-raising measures to help fund the rebuilding of quake-ravaged Gujarat.

But a sharp rise in the Bombay stock exchange reflected a warm welcome for the mix of tax cuts and wide-ranging reforms intended to push interest rates down and boost growth.

Finance Minister Yashwant Sinha announced measures in what he called a "new deal" budget to reduce the government deficit, maintain growth and speed up the privatisation programme.

Sinha: This budget is a new deal for the people of India

The 2001/02 budget deficit is expected to fall by 0.4% to 4.7% of the total economy.

Capital expenditure will to grow only marginally to 348bn rupees ($7.5bn) from 331bn.

Total spending, of which a large part goes towards interest payments, defence and subsidies, will to rise 200bn rupees to 2,503bn.

There was a 13.8% rise in defence spending following last year's 28% increase to fund the modernise the world's fourth largest army.

Financial markets feared special taxes after quake

The Bombay stock market leapt more than 4% after the budget, hitting an intra-day high of 4264 before falling back to 4,179, up 2.6%.

In comments after the budget was presented, Prime Minister Atal Behari Vajpayee said moves to boost customs duties on coffee, coconut and tea should allay the fears of farmers about a flood of imports under new WTO rules.

India will be removing restrictions on hundreds of agricultural and consumer items on 1st April when the rules come into force.

"The farmers should not be afraid or worried any more," said Mr Vajpayee.

Some financial analysts are warning it might be too soon to celebrate the budget.

They say two years ago, Mr Sinha presented a similar budget which the markets acclaimed - but was watered down after fierce opposition both within and outside the government.