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The extraordinary fiscal coming out of sorts witnessed in the recent Budget was on the express directions of Prime Minister Narendra Modi.

At a review meeting held in the run up to the Budget earlier this January, Modi told the finance ministry team that they should come clean and make a break with past dodgy practices of hiding and under-reporting the true size of the gap in the union government’s earnings and expenditure.

The PM is said to have told officials to open up and present all the details with full transparency to the nation. “Desh ka saamne jo sab baatein hain, unko transparency ke saath rakh dein”, is the one-line message that Modi gave to the finance ministry.

“With the PM’s directions, all doubt within the ministry evaporated,” a top finance ministry functionary said.

Feedback was sought (albeit in a roundabout manner without wrecking the secrecy surrounding the budget) from some experts.

“In the end, the PM’s words helped calm nerves within North Block and fill the budget team with courage. It was decided we will go ahead and publish the fiscal numbers as they are,” the functionary said. Summed up in words, the sentiment was: “Dekhi jayegi-kar dete hain (let us go ahead-we will see what happens)”.

So, why is this fiscal glasnost important and how does it make a difference?

For the citizen, this full disclosure means that he knows the truth of the government’s spending. Among others, the spotlight has revealed the true extent of welfare spending and the quantum of subsidies that taxpayers fund.

There is another element – that of the importance of genuine data in policy making. Let me give an example. In 2007, this writer jointly authored a story that revealed that inflation data had been consistently fudged with the weekly price data of dozens of items not being updated in the government database for weeks and months on end.

This in turn provided a flawed representation of inflation, which is nothing but a tax on the poor and ended up in an interest rate environment that was at odds with ground reality. The global financial meltdown months later in 2008, showed up the glaring weakness in the Indian economy.

Truthful economic data creates better and enduring trust in policy making and sends a signal to all economic agents that the government means business.

As Moody’s Investors Service said in a report days after the union budget was presented on February 1, the budget provides for pro-growth measures that will support credit quality across sectors in the near term, but at the expense of fiscal consolidation (emphasis mine).

The budget revised the current financial year’s fiscal deficit to 9.5% of GDP from the earlier projected 3.5% before the pandemic struck. For the next year, the government is targeting a fiscal deficit of 6.8% of GDP.

“While the headline deficit projections are larger than expected, they reflect both credible budgetary assumptions and greater transparency than in past budgets,” said William Foster, a Moody’s vice president and senior credit officer.

Not only has the Modi government come clean on the current fiscal year’s fiscal math, it has made it explicitly clear that it would go slow on medium-term fiscal consolidation and target a fiscal deficit of 4.5% of GDP only by fiscal 2025. As Moody’s explains, this amounts to an average annual deficit reduction of about 0.5% of GDP over four years.

Normally, such a loose fiscal stance would have come as a shock to the markets and emerged as a major credit challenge for India in the global context. The fact that the markets and ratings agencies have largely taken this in their stride points to the most critical issue at hand: the rate of growth of India’s economy.

If Modi has chosen transparency and full disclosure as the norm going forward after decades of subterfuge on the fiscal numbers, it follows that even this new, gentler fiscal glidepath needs a bout of strong growth to be sustainable. That in turn means that the economic hesitation of the past cannot guide the future. It also means that more than the opposition by some farmers, the Modi government’s biggest challenge is to return India to a high economic growth path.

And that is where the biggest reform in the mathematics of union government finance, has the potential to positively impact the chemistry of the animal spirits in the economy.

(The writer is a senior journalist and economic policy commentator. Views expressed are personal)