Prime Minister Narendra Modi had backed the idea of the January-December financial year last month while addressing chief ministers at the Governing Council of NITI Aayog.
The April-March fiscal was adopted in 1867 in line with the practice of imperial Britain. The Congress government in 1984 gave a shot at changing the financial year, appointing former RBI governor LK Jha to head a committee to explore the benefits of such a move. The idea was to ensure speedy allocation of funds during drought years.
Besides Acharya, an Oxford- and Harvard-educated economist, the 2016 panel included former cabinet secretary KM Chandrasekhar, former Tamil Nadu finance secretary PV Rajaraman, and Rajiv Kumar, a senior fellow with the Centre for Policy Research.
The government had last year set up a high-level committee to study the feasibility of shifting the financial year to January 1 from the current practice of starting it from April 1.
Economists are divided on the committee’s recommendations.
- Since agriculture contributes more than 15% to India’s GDP and above 58% rural households depend on farm yields, many experts have supported this move.
- “In case of a drought, which happens between June and September, a change in the accounting period from January to December will help in better budgeting. If the Union budget is presented in November, then early allocations will help the agro-economy and farmers,” said agriculture economist Ashok Gulati, backing the proposal.
- Chartered accountants point out that the change will not impact the common man. The taxation period will just change from the current April to March cycle to a new 12-month period.
- “Whatever the decision of the government, the financial year has to be same as the tax year, then there will be no hassles for the common man,” Girish Vanvari, head of tax, KPMG India.
- Madhya Pradesh became the first state to announce shifting of its financial year format to January-December from 2018.
Presenting the budget earlier comes with both advantages and disadvantages.
- In the existing system, the Lok Sabha passes a vote on account for the April-June quarter, under which departments are provided with a sixth of their total allocation for the year. This is done by March. The Finance Bill is not passed before late April or early May.
- If the Budget is read in January and passed by February-March, it would enable the government to do away with a vote on account for the first three months of a financial year retired and serving officials say the biggest plus would be that the Finance Bill, incorporating the Budget proposals, could be passed by February or March.
- So, government departments, agencies and state-owned companies would know their allocations right from April 1, when the fiscal year begins.It would also help the private sector to anticipate government procurement trends and evolve their business plans. And, civil society could deliberate on and give feedback in time for the parliamentary discussions.
- However, one big disadvantage of advancing the Budget preparations is lack of comprehensive revenue and expenditure data. Currently, work on the Budget begins in earnest by December. By the time it is finalised in mid-February, data on revenue collections and expenditure trends is available for the first nine months of the financial year, i.e April-December. Based on which, projections for the full year can be made.
- To read the Budget in January, the centre will have to start preparing it by early October. To go by less than six months of data and making projections for the full year and the next year, based on such an incomplete picture, will be an impossible task.
- Advancing the Budget dates would be fraught with practical difficulties. Effective Budget planning also depends on the monsoon forecasts for the coming year, making the advancing the whole exercise even more difficult.