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In 1997, Palaniappan Chidambaram wrote a budget of which middle-class Indians still wistfully dream. It slashed income and corporate taxes, encouraged foreign investment, and drove up the stock market. Last week, Chidambaram—Minister of Finance once again—gave India another budget. But this time, the people most likely to call it a dream are a group of Indians who usually have little reason to celebrate: the poor.

In no Asian country is the need to address poverty so pressing as in India. Despite seeing robust economic growth since reforms were first introduced in the early 1990s (when the pictures for this story were taken), some 250 million Indians still live in grinding poverty, making it the country with the largest population of poor people in the world. The World Bank estimates that in 2001, of the 1.1 billion people living on less than a dollar a day—the conventional definition of the desperately poor—428 million were in India and neighboring South Asian nations. Within a short drive of some of India's new, glittering, urban landscapes, chronically poor villages where children are malnourished can be found. Poverty in rural India is breaking social bonds, driving mass migration to cities, and fueling lawlessness and violence. As Chidambaram told TIME last week: "Our villages were neglected for too long. There is deep concern in rural India—you can even use the word unrest."

Yet dire though India's poverty may be, there is one thing that distinguishes the Indian poor from those in many other nations: they live in a democracy. And as India discovered last year, even its poorest can vote. At the general election, the ruling coalition led by Atal Bihari Vajpayee, lauded for its bold economic reforms, suffered a shocking defeat at the polls, partly because of resentment from the poor that they were missing out on the boom. Into office came a government that needed the support of the Communists, and which had promised not to forget those at the bottom of the heap.

Chidambaram's budget is one of the more salient proofs that the new government has remembered its origins. The budget, which increases spending on a range of antipoverty measures, is easily the most ambitious effort to channel India's robust economic growth into solving its most enduring problem. "Given the resilience of the Indian economy," the Finance Minister said in his speech to India's Parliament, "it is possible to ... launch a direct assault on poverty and unemployment." He then earmarked $5.7 billion for a series of programs aimed at bolstering education, infrastructure, housing, nutrition and health care, especially in India's villages, where the bulk of poor Indians reside. Chidambaram, a Harvard-educated lawyer who is the stock market's favorite Finance Minister of all time, did not ignore the middle class: he cut and streamlined taxes. Yet the thrust of his budget was aimed at the poor. Among his new proposals: a plan to extend irrigation to 10 million hectares of agricultural land over five years—a move that could, theoretically, give employment to 10 million Indians in the countryside. Other measures include boosting rural employment, building 6 million houses for the poor by 2009, bringing electricity to 125,000 villages, and nearly doubling the funding for a program that encourages poor children to stay in school by giving them free lunches.

Conscious of the need to distribute the benefits of growth more evenly, business leaders welcomed Chidambaram's proposals rather than voicing disappointment that he had not cut India's fiscal deficit aggressively or launched bold moves to open up the economy to foreign investment. Says Kumar Mangalam Birla, chairman of the Aditya Birla Group, a Bombay-based conglomerate, and one of the country's richest men: "65% of our population is in the villages; you have to have a budget that addresses them." Empowering the poor, many businessmen say, will eventually widen the foundations of the boom. "The emphasis on health, education and fighting poverty will mean increased economic opportunities and spending power. The tech sector in this country would be an indirect beneficiary," says Kiran Karnik, head of NASSCOM, India's information-technology trade association. Yet for many Indians, the big question remains: Will increased spending really do anything to reduce poverty?

For it is not as if Indian governments have ignored the poor in the past. Indeed, for decades, governments with a socialist ideology threw money at poverty—only to find that much of it was wasted through corruption and mismanagement. The sharpest reductions in Indian poverty seem to have come not when New Delhi had spent the most, but when the economy had grown the fastest. After India began dismantling its socialist economy in 1991, the percentage of the population living in poverty fell from 36% in 1993 to 26% by 2000.

Measured by the only test that matters—its effect on helping the poor—what impact will Chidambaram's budget have? Some of his proposals have been widely welcomed. By asking banks to increase rural credit by 30% this year, Chidambaram gives hope to India's cash-starved farmers. But other plans are more controversial. The Finance Minister argued that subsidies "provide a measure of protection for the poor." Economic reformers didn't like that. "Our concern for fighting poverty should not mean that we continue with inefficient subsidies," says Jayaprakash Narayan, founder of Lok Satta, an NGO that focuses on good governance. Narayan argues that subsidies for food and fertilizer mostly end up with corrupt bureaucrats and inefficient manufacturers, and does little for the poor themselves. Higher spending means the government will likely miss its deficit-reduction targets for next year. Yet Chidambaram insists that he remains on track to contain India's deficit. "I have made a solemn commitment that we will resume on the path of fiscal correction in 2006-7," he told TIME.

Even before it lifts a single Indian out of poverty, Chidambaram's budget has already achieved something important: it had none of the socialist rhetoric of the past. Chidambaram has increased spending on the poor without punishing the middle class and rich, and has hence shown that fighting poverty and keeping India's economy booming need not be contradictory goals. Indeed, the Bombay stock market shot up 2.2% on the day of his speech.

Yet even if most Indians accept that their country's new prosperity must be shared, many remain pessimistic that the poor will benefit from the measures. "We have no reason to believe that the current bureaucratic system can deliver," says P. Chengala Reddy, of the Indian Farmers and Industry Alliance, a farmers' lobby, citing the wastage and corruption that have blighted previous initiatives. Chidambaram's paradox is this: to reach India's poor, he has to rely on a bureaucracy whose inefficiency helped perpetuate the problem of poverty in the first place. The Finance Minister is aware of the challenge. "We have provided the money, and I accept that it is our responsibility also to ensure that the delivery systems are improved," he told TIME, and his speech acknowledged the reality of India's sclerotic bureaucracy. "The fact that someone in government has voiced this concern is a positive step," says Sashi Krishnan, chief executive of Bombay-based Cholamandalam Asset Management Co., which manages mutual funds. Chidambaram has shown that the government has the will and the wallet to help the poor. If he can now ensure that they truly get the help they deserve, his budget will be remembered even more than the one from eight years ago that the middle class still celebrates.

• Aravind Adiga | New Delhi
• The government's new budget makes good on pledges to help millions of citizens living in misery