NEW DELHI, Feb 29: India’s Finance Minister P. Chidambaram unveiled a populist budget on Friday that failed to enthuse markets but signalled a possible early election otherwise not due till May next year.

Perhaps the single most political decision in Mr Chidambaram’s fifth and possibly last full budget proposed $15 billion to write off debt owed by small farmers to banks. The scale of the largesse could be judged by the fact that his 10 per cent increase in defence spending earmarked $26.5 billion for the military in 2008-09.

India is planning one of its biggest ever arms purchases, a $10 billion deal to buy some 26 fighter jets and US Defence Secretary Robert Gates was in India earlier this week to push American bids for that deal. It also has plans to spend $30 billion on imports over the next four years to modernise its largely Soviet-era arms.

Analysts said the latest defence increase was above inflation but spending had fallen below 2 per cent of GDP for the first time in at least a decade due to fiscal pressures and larger outlays for farm, health and education sectors.

Speaking to the media after his presentation, Mr Chidambaram said despite a slowdown in growth across the world the India story was not expected to stall. “The India growth story is intact as the average growth for the first three quarters of the current fiscal is more than 8 per cent and the growth in the last quarter is also expected to be on the same lines. I hope I am able to maintain my batting average of 8.9 per cent.”

The budget appeared to keep its tryst with the growing corporate sector. As Mr Chidambaram observed, “what does the corporate sector need? It needs a vibrant stock market, strong banking sector, and freedom to do business and less of control. I believe they have all of these”.

India’s stock markets fell on news of the government proposal to waive the debt of small farmers. The Bombay Stock Exchange’s 30-share Sensex index was 1.4 per cent lower at 17,579 points at the provisional close.

Two-thirds of India’s people depend on agriculture, and most have been left out of its economic boom. While the country’s economy is expected to grow 8.7 per cent this year, agriculture is expected to grow 2.6 per cent. In parts of western and southern India, the dire economic state of farmers has been blamed for thousands of suicides in recent years.