Prime Minister Manmohan Singh's ruling coalition won an overwhelming election victory on Saturday, boosting hopes of a stable government as the emerging Asian power faces economic downturn and tensions with Pakistan.
Singh's Congress-led coalition, riding on the back of years of economic growth, did better than expected and will probably be only just short of an outright majority, according to data from the election commission and projections by TV channels.
"The people of India have spoken, and spoken with great clarity," Singh told reporters.
The victory over the opposition Hindu-nationalist-led alliance means the left-of-centre Congress may find it easier to form a stable coalition with smaller parties and be less vulnerable to pressure on issues like economic reforms.
"Eventually the people of India know what's good for them and they always make the right choice," Sonia Gandhi, the head of the Congress party, told reporters.
Congress party supporters carrying banners of star campaigners Rahul and Priyanka Gandhi, set off firecrackers in celebration on the party's return to power.
The Congress party-led coalition was projected to win 261 seats, short of the 272 needed for a parliamentary majority, state TV said.
The Bharatiya Janata Party (BJP)-led opposition alliance would take 160 seats and a Third Front of communist and smaller groups 58 seats, the TV channel said.
The BJP, accused by rivals of a divisive agenda, effectively conceded defeat by saying that Congress had the biggest mandate.
"The results give the government much more freedom of action than it could have hoped for," said Pratap Bhanu Mehta, president of the Centre for Policy Research.
"Not only because it no longer needs the support from communist allies, but even the opposition, the BJP, has been so diminished after this election that it gives the Congress room on the foreign policy front too," he said.
Pakistan will top the foreign policy agenda of the new administration with the United States expected to renew calls to New Delhi to reduce tensions with Pakistan to help stabilise the situation there.
Ties with Pakistan have been in deep-freeze since an attack on Mumbai by Pakistan-based militants last November.
The Congress win should boost investor confidence and hopes for reforms. Markets had been jittery over a poor showing by either national alliance, fearing the emergence of a weak coalition.
"This is a dream for the market. You could not have thought of anything better than this. Get ready for a 7-8 percent rally in the stock market on Monday," Samir Arora, a fund manager at Helios Capital management in Singapore.
A Congress party spokesman said the party would pursue extensive economic reforms but played down the prospect of privatisation.
About 714 million people were eligible to vote in the largest such exercise in the world staggered over a month to allow security forces to supervise the vote.
Singh, 76, said he wanted a cabinet role for Rahul Gandhi, heir apparent of the Gandhi-Nehru dynasty who is seen as the architect of the Congress party's resurgence in northern states.
India's booming economic growth for the past four years, including rising rural incomes, also appeared to have worked for Singh's coalition.
"It seems to me that we must acknowledge the economy," said political analyst Mahesh Rangarajan. "Despite the slowdown in the economy in the last year, these four or five years have been among the best in India's recorded economic history."
The election was a setback for regional, caste-based parties and the communists who were once seen as indispensable for any coalition formation.
The communists, who were losing in their bastion states, broke away from Singh's coalition last year, angry over a civilian nuclear energy deal with Washington seen as undermining national sovereignty.
Mayawati, the controversial chief minister of Uttar Pradesh who was tipped as a possible kingmaker, did not make significant electoral gains to wield influence in a possible coalition.