Stock markets can react in a jittery fashion to any piece of news -- last year, the Sensex plunged 3.87 per cent on budget day, and the year before it rose 4.4 per cent. Nevertheless, it is becoming increasingly clear that budgets are no longer as important as they used to be.

According to analysis done by Surjit Bhalla, managing director of Oxus Research and Investment, the Sensex is increasingly reacting less to the budget, and more to other events during the year.

Bhalla measures this by what's called 'volatility', or the standard deviation of the change in the Sensex, and concludes that the volatility of the Sensex been lower in the month just after the budget is presented, in comparison to that in the rest of the year.

In 2002, for instance, the volatility of the Sensex was 2.6 in March (the month when the market reacted to the budget's announcements), but 3.7 for the rest of the year, clear evidence that other events had a lot more influence -- the government's decision to postpone the sale of HPCL and BPCL in September, for instance, saw the market capitalisation of all PSU stocks fall a whopping 8.5 per cent in a single day.

In the year 2000, similarly, the Sensex volatility in March was 8.5, vastly lower than the 11.7 in other months.

The Sensex volatility in March 2001 was a lot higher than during the rest of the year, but this probably had a lot more to do with the Ketan Parekh and Tehelka exposes during March than with the budget itself.

When you analyse the budget speech, the reasons for this become pretty obvious -- right from the time of Dr Manmohan Singh in 1991, the budget speech has been an occasion to announce the future direction of economic reforms.

So, in 2001 when the markets greeted Yashwant Sinha's budget with a 4.4 per cent leap, the main reason was Sinha's promise that the government would soon move legislation making it easier for companies to close down -- he said that companies with less than 1,000 workers would no longer need government permission to down shutters.

Yet, since it has been found that the government has been quite lax on delivery -- the promised labour reform has still not seen the light of day almost two years later -- the markets are no longer reacting to the budget with the same fervour.

This year, it is true, the implementation, or the lack of it, of the Kelkar report will make a major difference to the Sensex.

The Kelkar proposals on indirect taxes, for instance, will result in a massive tax hike for most companies (that's why Tarun Das of the CII is now criticising the report, after CII's initial burst of support), and so if this is implemented we can clearly expect the Sensex to go into a spin, at least initially.

But that apart, the budget holds few surprises. Interest rates on small savings are, it is clear, going to go down further, if not this year, then certainly in the next. Import duties, similarly, will fall to East Asian levels, over the next few years.

Cutting the deficit is important, but despite all the pious intentions of the finance minister, the real decisions get taken only outside the budget process.

Two years ago, for instance, Sinha announced that he was working on a policy which would eventually result in winding up the Food Corporation of India and that state governments would do their own procurement and distribution, even storage.

As a result, the extra Rs 5,700-odd crore (Rs 57 billion) the government spends every year on holding extra grain in its godowns would no longer be required. We know what happened to that proposal, don't we?

In any case, the real crisis facing India right now is not the conventional one related to the large fiscal deficit.

Textbook theory has it that when there's a large deficit, this means the government is spending more, and is therefore 'crowding out' private investment.

In India, by contrast, what we're witnessing is a situation where there are no major investments being planned. For investment activity to revive, we clearly need more reforms to happen, outside the budget process.

A major area of investment in the early '90s, used to be power projects. But with most SEBs getting more broke (losses have jumped six times in the decade, from Rs 4,117 crore (Rs 41.17 billion) in 1991-92 to Rs 24,321 crore (Rs billion) in 2002-03), there is no point setting up new power projects.

Hence, the sharp increase in new investments in the power sector being shelved. Getting these projects to come back requires getting consumers to pay more, and that is an off-budget exercise.

The lack of power, in turn, inhibits the setting up of industry.

A major problem area remains savings -- India's savings are not just too low, they're falling, from 25.1 per cent of GDP in 1995-96 to 23.4 in 2000-01.

And within this, the savings are not getting channelised into the stock market, which is where firms get equity from.

While the problem of getting people to invest in equity has a lot to do with improving the quality of governance in the system (there's been one big financial scam every year in the last decade, from Harshad Mehta to Ketan Parekh), the problem of raising savings rates is different.

The main culprit here is  excess government spending -- while the government saved 1.7 per cent of GDP in 1994-95, it had excess expenditure 1.7 per cent of GDP barely six years later in 2000-01.

Correcting this, through massive downsizing and closing down of PSUs will require much more than just one budget.

Getting state governments to concentrate on business, is equally critical, and an off-budget exercise.

Even in prosperous industry-friendly Gujarat, for instance, Nikhil Gandhi had to shift his proposed Positra Special Economic Zone (SEZ) project out of the state when he couldn't get land allotted for over 27 months.

Gautam Adani's proposed SEZ, similarly, hasn't moved an inch with the Gujarat government yet to decide on the project.

Despite the obvious advantages, no state has freed up movement of farm produce across borders, nor has there been any significant progress in freeing up huge tracts of commercial land for development in states such as Maharashtra.