By Raj Kumar Ray and Krittivas Mukherjee

NEW DELHI (Reuters) - Indian Prime Minister-elect Manmohan Singh vowed on Tuesday to revive growth and spread the benefits of economic expansion that swept his coalition back to power with a decisive mandate in a general election.

Singh, 76, formally elected by lawmakers of his Congress party as their leader, said his coalition would pursue reforms in agriculture, industry and the wider economy to spread the benefits to the country's 1.1. billion population.

"There is some slowing down of investment and employment generation. We have to revive growth and make it even more inclusive," he said in an acceptance speech as MPs thumped desks.

Two powerful regional parties from northern India said they would support the Congress party-led coalition, further strengthening the stability of the new government.

Heads of the Bahujan Samaj Party and the Samajwadi party, two major groups in India's most populous state, Uttar Pradesh, said they had written to Indian President Pratibha Patil pledging their support to the coalition.

The two parties have 44 lawmakers in parliament between them.

Singh's coalition won 262 seats in the 545-member parliament, just 10 seats short of a majority, boosting hopes of a stable government.

Congress campaigned during the month-long election on a record of spending on the rural poor, including a public jobs programme in the countryside and a costly loan waiver programme for indebted farmers.

Singh said it was important to sustain a high growth rate to make it more inclusive, but that would require new investment and better management of public finances.

Growth in Asia's third-largest economy is expected to slow to a seven-year low of about 6 percent this fiscal year from about 7 percent in 2008/09, and from rates of 9 percent or more in the previous years. Millions of jobs have already been lost.

Analysts say an expansionary fiscal policy could further stretch public finances and widen the deficit, which is running at about 10 percent of the gross domestic product.

But Congress leaders say the fiscal deficit is not an immediate concern compared to the pressing need to uplift millions of poor who gave the party its biggest mandate since 1984 in the vote, the world's biggest democratic exercise.

"The five years in front of us could well be a decisive half-decade. If we can sustain the growth rates of the last five years, we can reduce poverty, create new employment, accelerate rural development and industrialisation and transform the lives of our people," Singh said.

"We must grasp the nettle firmly and forge ahead."


Earlier, Congress party head Sonia Gandhi proposed Singh as the parliamentary party leader, setting the stage for his appointment as prime minister.

Indian shares ended marginally higher following Monday's 17.3 percent surge on the prospect of a government free of pressures from difficult partners.

Two Congress officials, speaking on condition of anonymity, said Pranab Mukherjee, who was foreign minister in the previous coalition, may be named as the country's new finance minister.

Mukherjee, a veteran politician, had been looking after the finance ministry since January when prime minister Singh who held the finance portfolio had heart surgery.

Earlier, the Congress-led UPA coalition was further strengthened after Mayawati, the powerful leader of the Bahujan Samaj Party (BSP) representing India's lower castes, pledged her support.

"Our 21 MPs will extend outside support to the UPA government," Mayawati, who is also chief minister of India's most populous state Uttar Pradesh, said in a news conference in the northern city of Lucknow. Her party had fought the election against the Congress party.

(Reporting by Nigam Prusty, Surojit Gupta and Bappa Majumdar; Writing by Sanjeev Miglani; Editing by Bill Tarrant)

Article Published: 19/05/2009