India's Finance Minister, Yashwant Sinha, has unveiled a national budget that raises taxes and promises to control a soaring fiscal deficit, while increasing spending on defence and incentives for industry and business.

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Mr Sinha told parliament in Delhi that he would encourage more economic reform, deregulation and privatisation of state-owned companies so that India could become an economic super-power by the year 2020.

The finance minister admitted that this year's budget deficit would be much higher than he had hoped, largely because of low tax revenues brought on by an economic slump.

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He told parliament that the deficit had to be brought down and, to do so, he raised corporate and personal income taxes by between 2% and 3%.

Mr Sinha said the deficit would be brought to an acceptably low level within a few years, as Indian industry and business grew.

He said the country expected to earn more than $2bn this year from privatising state companies - a promise that earned him a few jeers from opposition MPs, who are against the shedding of public enterprises.

Defence spending hike

On defence, he announced an 11% increase in spending.

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That will attract an adverse comment from neighbouring Pakistan, but Indian military leaders say an array of obsolete arms and other equipment is in need of replacement as soon as possible.

Much of what Mr Sinha announced will be of comfort to business and investors, although it is not likely that they will flood back into a market they have been shunning lately without seeing whether the government actually implements many of its intentions.

Gold reserves

The finance minister is also trying to tap India's vast reserves of gold, mostly held by individuals and families and often purchased with untaxed income.

Mr Sinha said banks would be allowed to take gold as interest-bearing deposits and refund them in the same manner. Indians hold the largest private stores of gold in the world, but there is doubt that the finance minister can actually convince people to invest it.