India, Feb. 2 -- The stock market is not a litmus test of a country's annual economic policy statement. The fact that Sensex, the benchmark index of BSE, lost 1.88% on Sunday, the seventh highest fall on a budget day since 2004, should, therefore, not be a factor in any budget analysis. The fall was exclusively because market players were unhappy at the increase in securities transaction tax on derivatives - a move prompted by a desire to protect small investors, many of whom have lost money on these instruments. Indeed, the only people to make money on these are large firms using high-frequency trading.

Nor is popular sentiment - which is anyway fickle. The analytical framework for budgets needs to be more sophisticated. For starters, i...