Shares slumped by 2% in their biggest fall so far this year after finance minister Nirmala Sitharaman raised taxes on the rich and increased tariffs on a range of imports in her first budget.
Sitharaman also proposed increasing the minimum public shareholding in listed companies to 35% from 25%, reported Reuters, threatening a wave of new issuance.
The budget envisages India becoming a $3trillian economy in the current fiscal year and a $5trn economy in coming years, and in 2019-20 foresees total government spending of 27.86 trn rupees ($406bn).
In what has been seen as a cautious move that scotched expectations among analysts of a fiscal stimulus, Sitharaman stuck to earlier borrowing targets and cut the fiscal deficit target to 3.3% of GDP.
The principal aims of her plans are to boost infrastructure, job creation and foreign investment, with the government upgrading 125,000 km of roads over the next five years at a cost of $11.6 bn.
The hope is that this will reverse slowing investment flows that have pushed down economic growth which threatens to stall the high hopes that followed Modi’s landslide re-election.
Spending will be focused on road building to connect villages, connecting more rural homes to power supplies, and Sitharaman promised to build 19.5 million rural homes by 2022.
Rising water shortages underpin plans to to provide piped water across the country by 2024 and consolidate a fragmented water administration system under one ministry.
State-owned banks are to be injected with 700 bn rupees of additional capital and will be given a partial one-time guarantee on loan defaults on the borrowing of shadow banks.
India is to ease foreign direct investment restrictions in the retailing sector, and will permit foreign investors to buy the debt of listed real estate investment trusts, with further proposals to open up FDI in aviation, insurance, media and animation sectors.
The budget hits wealthy and middle-class Indian taxpayers, with Sitharaman proposing to raise tax on those earning above 20 million rupees ($290,000), taxing large cash withdrawals, and hiking gasoline and diesel taxes.