The rising stock market index, the Sensex, up more than 5% by Friday afternoon. India's currency, the rupee, rose around 0.5% against the US dollar.
The tax cuts will result in a 1.45 trillion rupee ($ 20.4 billion) drop in government revenues every year, according to Sitharaman.
"The idea is [that] economic buoyancy wants to generate its own revenue," she said.
Sitharaman said boosting India's manufacturing industry wants to "make a lot more investment, a lot more employment generation [and] a lot more economic activity" in the long run.
Analysts say the tax cuts will help.
"The fiscal steps by the Indian government are likely to re-energize investor interest," Jeffrey Halley, senior market analyst for Asia Pacific at Oanda, said in a research note. India still has big problems like a banking sector saddled with a huge pile of bad debt "but this is definitely a step in the right direction," he added.