Finance Minister P. Chidambaram forecast Asia's third-largest economy would grow by 8.1 percent this fiscal year ending in March after expanding by 7.5 percent the previous year, and would aim for 10 percent growth in the next few years.

"Growth is the best antidote to poverty," he told parliament.

The left-leaning Congress-led government, brought to power in 2004 by support from India's poor rural masses and facing five state elections, announced a slew of social-spending programmes.

At the same time, it moved to boost the economy and rein in the fiscal deficit, steps that pleased the share market which jumped nearly one percent to hit a record high.

Social measures included more generous farm credit, a 32 percent hike in education spending and a 22 percent rise in health and family welfare outlays, plus a 54 percent increase in funds to improve infrastructure and bring basic amenities to rural India.

India's dilapidated roads, railways, ports and other infrastructure are cited as key stumbling blocks to attaining double-digit growth.

Helping the government spend more was India's surging economy that has pushed up tax revenues by 20 percent tax "for an unprecedented three years running," said Chidambaram.

He held the line on personal and corporate incomes taxes but raised the tax rate on services to 12 percent from 10 percent. He also widened the tax net on services which accounts for 54 percent of GDP but just five percent to tax revenues to embrace such areas as advertising and management services.

Chidambaram, known as an arch economic reformer, said the budget was a bid to show investors the government had both its "head and heart in place."

"Growth will be our mount, equity will be our companion and social justice will be our destination," he told parliament.

He announced the fiscal deficit would fall to a better-than-expected 4.1 percent of Gross Domestic Product (GDP) for the year to March 2006, instead of the 4.3 percent initially forecast, and then to 3.8 percent the following year.

"Last year, I reluctantly pressed the pause button on fiscal correction," he said. "I have redeemed my promise that the process of fiscal correction will be resumed in 2006/07."

Chidambaram said the government would maintain an "unrelenting emphasis on fiscal prudence."