The budget speech came and went, the market dropped, and we all shrugged our shoulders. Not much ado about nothing did you say? Right you are, but there are hidden messages. Perhaps the most hidden is that nominal GDP growth for next year is targeted by the government at 12.7 percent - given an expected inflation rate of close to 4.5 percent, this is mega news. That the government is officially forecasting 8.2 percent GDP growth in the year just following a super monsoon is about as India shining as it gets.

But we must remember that this is an election year and that budget forecasts are not necessarily the real thing. But there are some pointers here for the justified cynicism - after a long time, the actual fiscal deficit (for 2003-04) will turn out to be not only lower, but significantly lower than budgeted - 4.8 percent vs. 5.6 percent. And this despite the reform goodies handed out a few weeks ago in the form of lower customs duties.

We all knew that growth had been good, but the rational fear was that the government would go out and spend it. Instead, the government did not increase its revenue expenditure and the extra taxes gained went into lowering the deficit. This augurs well for the hope that the deficit will be reduced by growth over the next few years.

How realistic is the 8 percent growth forecast for next year? Acceleration of India's growth above the 5.5-6 percent range has occupied a lot of intellectual space over the last few years, and especially over the last six months. An event forecast by the Finance Minister - two successive years of growth above 7.5 to 8 percent has just not happened, ever, in India. The closest India came to this stellar performance was immediately after the Manmohan Singh reforms of the early nineties. For the three years 1994/95 to 1996-1997, GDP growth in India was 7.3, 7.4 and 7.0 percent, respectively. No such major reforms have taken place now as in the early nineties. So how realistic is the forecast?

In my view, very realistic. And the assessment is quite independent of whatever happens with the monsoon next year. The numbers are straightforward. Assume for the moment that agriculture, with 20 percent share in output, grows at 0 percent. Industry is already kissing a 7 plus growth rate and it is not unrealistic for it to touch 9 percent next year. Services, because of the labor market connection, will have to closely follow industry and should therefore average close to 10 percent. Aggregate growth - 7.8 percent.

Which brings us to the next question - how likely is it that industrial growth will average 9 percent next year? One of the interesting statistics about Indian GDP growth of 5.5 percent over the last 22 years is that this has occurred in the context of a rather tame industrial growth of less than 7 percent; and since 1993 of only 5 percent per year. This is an almost unheard of statistic in the record of economic development of over a 100 countries over the last fifty years. It is virtually impossible to grow at 5.5 percent and for industry to average a growth rate of about the same magnitude. There are precious few examples of such a low industrial growth rate (and high growth rate) among developing economies; even amongst developed economies, and those going thru a "hollowing" out process, a 6-8 percent industrial growth is expected.

India has been exceptionally bad in industrial performance primarily because of the high capital costs that the industry has faced. (It did not help that for a long time our industrialists wanted to hide their inefficiencies under the umbrella of high tariffs). Real interest rates have declined by about 6 percent over the last couple of years, and they are destined to go down further. It is not animal spirits that is driving India shining in manufacturing and it is not good stewardship on the part of the BJP (but see the caveat below). It is good old fashioned reduced capital costs and increased profits. Some economists argue that reduced interest costs, even of the magnitude witnessed, should not, cannot, and will not increase investment in the next fiscal year. Hence, industrial production in India will fall back to its average of the last twenty years. These forecasters have history on their side, but not the future. If Indian industry does not respond to decreased interest rates and lower customs duties, then India would have defied all the laws of economics. And if so, then the nattering negativists might as well argue that we go back to the socialistic pre-reform days. And why not - costs do not determine profitability so let us move everything to the public sector and let babus rule again. Yes, especially since pigs are flying in India these days.

The Vajpayee government did not bring about India shining. (It was globalization that did it). But equally, the Vajpayee government has done a superb job of facilitating the catapulting of India to the rarefied 7+ growth club. Recall that in 1999, at the time of the last election, the debate in the pink papers was about swadeshi (non)economics. It has been more than a while since the word swadeshi appeared in print. (Last I heard, the Congress party was thinking about taking up this slogan for the forthcoming election. If it is true that the Manmohan reform Congress is going swadeshi, then it is also true that pigs do fly in India.) In 1999, the word privatization did not exist in the Indian political vocabulary. The fear of doing good was so large among Indian politicians that they had invented the word, disinvestments; literally invented since such a word does not exist in the English language. Lastly and most importantly, Vajpayee's government started dismantling the scam-infested administered interest rate regime - and made India shining a possible reality.

In 1999, there was also talk of housing for the Gods. The BJP dared to be reformist. They now talk of housing for the people, and rightly expect to be voted back into power. The real post election budget awaits us. It will be the most important budget since 1991.