Finance Minister Yashwant Sinha's maiden budget on Monday for the BJP-led coalition could give the reform process a needed push, but it cannot make the numbers look good.

Optimistic official forecasts on the economy will fool no one after last year's slump in gross domestic product (GDP) growth to 5 percent, following three years above 7 per cent.

Sinha has stressed the need to kick-start the economy and contain inflation and a fiscal deficit that ballooned to 6.1 percent of GDP last year.

It will require a conjurer's dexterity to manage all three. "If he can pull that rabbit out of a hat it will look like no rabbit I have ever seen," one fund manager remarked.

The international rating agency Standard & Poor's just over a week ago gave its verdict. S&P assigned a negative outlook to a country it already rated below investment grade.

Some analysts are already pegging1998/99 growth below 4 per cent, harking back to the "Hindu growth rate" of earlier decades when socialist policies ruled. Gross domestic product grew by only 5 per cent in 1997-98 after averaging 7 per cent over the three previous years.

"I don't think the budget can do anything. You cannot expect one guy to turn the economy around," commented one analyst for a foreign brokerage, who requested anonymity.

Sinha has felt the loneliness of the job long before prime minister Atal Behari Vajpayee appointed him last March. During a brief four-month tenure in 1990-91, under a socialist government, Sinha had to pledge Indian gold to the Bank of England to help the country through a balance-of-payments crisis. Today the balance of payments, at less than 1.5 per cent of GDP looks relatively comfortable -- provided the backlash to foreign capital inflows from the nuclear blasts is not too extreme. But government finances have nothing to spare. Demand and investment are depressed. Export growth is sliding, and wentfrom more than 20 per cent to 3 per cent in a year.

And this year some analysts predict negative growth for the sector as the effects of Asia's economic crisis reverberate.

If India wants a "macho" defence policy, manifest in its nuclear testing, social and capital spending will suffer. Defence already consumes 26 per cent of spending.

The government said in March it would increase defence spending by 11 per cent to Rs 40,000 crore ($9.7 billion), but defence experts expect a little extra after this month's events.

Sinha has precious little margin to play with. Nearly 50 per cent of his revenues will disappear on interest repayments. Salaries take 15 per cent and subsidies 13 per cent. If expenditure is reallocated to defence, any net gain in popularity the BJP made from going nuclear could be lost as economic hardship mounts in a country where the bulk of the 950 million people are short of a comfort zone. Vajpayee has said he wants to avoid an arms race.

Commentators say the best way he can dothat is to sign nuclear non-proliferation treaties fast, and mend fences with the world to minimise sanctions already invoked by Washington.

But with or without a bulge in the defence spending, gaps look likely to occur in the government's finances. Aggressive divestment might help his reformist credentials, but will not earn much money in sick markets.

And if investors are scared off by south Asia's radioactive politics, hopes that foreign capital inflows will continue to bridge the savings gap in the economy will be forlorn. A fall of more than 4 per cent in the rupee since India detonated its tests on May 11 -- it closed at a record low of 41.72/75 per dollar on Friday -- reflect fears in the future.

The cost of sanctions, which India has so far said were manageable, could mount up.

Reduced access to concessional loans, which account for 43 per cent of India's external debt, will increase dependence on higher cost private funding. Capital investment expenditure is pared to the bone, and Sinha needsprivate investment for the vital infrastructure sector. The question in this context is whether Sinha will back off from stated BJP policy and allow foreign involvement in the insurance sector, to mobilise funds for infrastructure. India must not lose economic sense by printing money.