Finance Minister Arun Jaitley said he planned to double the income of struggling farmers in the next five years.
Having overtaken China as the world's fastest-growing economy, India is seen as a bright spot in the global economy.
But it has been hit by slowing global demand and severe droughts affecting rural areas.
"We are grateful to our farmers for being the backbone of the country's food security," Mr Jaitley said of India's estimated 120 million farmers.
"We need... to give back to our farmers a sense of income security."
He said the government had allocated $12.7bn (£9.15bn) for "rural development as a whole".
Analysts say Mr Jaitley has announced increased spending on rural economy, health and social sectors with an eye on boosting his party's prospects in the coming state elections.
They include a pledge to set up 89 projects for irrigation, doubling investments in rural roads to help farmers get produce to market, getting cooking gas to millions of poor households and funds for women entrepreneurs from underprivileged families.
The government would raise spending on a massive rural employment scheme, a crop insurance programme and increasing rural access to the Internet.
It would also work to ensure all the country's villages had electricity within two years, Mr Jaitley said.
He said the government would achieve its goal of cutting the fiscal deficit to 3.5% of gross domestic product (GDP) for 2016-17 from 3.9% the year before.
Since coming to power in 2014, Mr Modi has promised to improve business and investor climate in the country with tax reforms and major infrastructure projects.
That policy has been criticised by the opposition as being too business-friendly and coming at the expense of social spending and welfare projects.
The country's huge rural population has been hit by severe droughts and recent regional elections have shown dwindling support for Mr Modi.
With crucial elections in largely agricultural states like West Bengal and Uttar Pradesh due this year and next, the government is under pressure to address the rural economy.
Analysis by Simon Atkinson, Editor, India Business Report
From irrigation to better roads - this was a budget heavily geared to rural India where two thirds of the population live.
That's partly because agriculture has suffered after two years of poor rainfall. But perhaps there was some pragmatism too ahead of elections in four states over the next year where rural voters are key.
There was support for start-ups - from tax breaks to funds for women entrepreneurs.
And while it has not been able to push through any real tax reforms - it has used the budget to remove 13 different taxes which should go some way to simplifying doing business.
But what we were lacking were the specifics of revenue-raising - especially given the finance minister is not loosening its fiscal deficit target.
Pollution taxes on new cars and up to 15% tax on cigarettes will only go so far.
Heavy one-off taxes and penalties on undeclared income - with a promise of no questions being asked and no prosecutions - might get a few takers.
But we need more details on things like potential sell-offs of government businesses before we can judge this budget. [1]
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