Fincial year needs hard look
After dumping the Planning Commission for a more indicative and advisory NITI-Aayog, the rendra Modi government now wants to take a hard look at the fincial year. If the Planning Commission was an achronism, the fincial year beginning from April 1 and ending on March 31 is a relic of the British Raj — so the feeling goes. Other countries that follow the April 1-March 31 fincial year include the UK, Cada, Hong Kong, South Africa, Myanmar and Japan. If India now moves over to a new fincial year, will it bring about more effective spending of government funds, help agriculture, make it easier to do business and speed up economic growth? The Central government recently set up a committee to examine this question from all aspects. It will take into account the government’s budget process, the country’s agricultural cycle, private business, and data and statistics. Headed by former chief economic adviser Shankar Acharya, this panel will submit its report by December 31 this year. Already a lively debate has erupted as to which fincial year will best suit the country’s interests, with stakeholders and experts taking sharply differing stands. Over the years, there has been a feeling in government circles that government money should flow when it is possible to spend it straightaway and carry out maximum work on the ground. This the April 1-March 31 fincial year does not allow, as the monsoons break just when the funds reach the authorities implementing infrastructure and development projects.
Work comes to a standstill during the long rainy season, so government spending is bunched up at the fag-end of the fincial year. As for agriculture, it is true that the April to March budget cycle synchronizes with the cropping cycle starting with the sowing of kharif crop in April and ending with the harvesting of rabi crop next March. But the big imponderable is how the monsoons will behave in a given year, and how it will impact agriculture. A section of experts argue that long-term weather forecasting is still not reliable enough for the government to factor in the monsoons effectively. This hampers in policy making for rural economy which may be reeling from draughts or floods, particularly in times of increasing weather fluctuations. For these experts, if the Indian budget cycle begins in October after the monsoons have receded and ends on September next, it will help the government tailor its budget appropriately for the rural sector by incorporating the monsoon impact, as well as give eight straight months from October to May for government spending to flow unhindered. Bibek Debroy, noted economist and member of the PM’s tiol Institution for Transforming India, has said that the fincial year should ideally begin on November 1, with the budget tabled in Parliament in October.
There are many countries following the January-December calendar year as their fincial year, most notably Chi, Russia and France. The IMF and the World Bank also follow the calendar year. The US fincial year stretches from October 1 to September 30, while Australia, Pakistan and Bangladesh among others follow the July 1-June 30 cycle. It is not as if India is taking a critical look at its fincial year for the first time. Back in 1984, it took up the question of whether it would be advantageous to begin the fincial year from January 1, July 1 or October 1, apart from April 1. The L.K. Jha committee in the end plumped for the January-December calendar year as the best option, as it would bring India in sync with most countries. But the government developed cold feet, fearing that the change involved would be too complicated and disruptive. As for the Modi government’s relook at the fincial year, the Assocham has already voiced its protest, arguing that it will cost the country heavily — causing ‘huge avoidable disruptions’ in book-keeping, accounting software, taxation systems and human resource practices for businesses and industries. Be as it may, it is a timely move by the Centre to review the fincial year, for it must suit the changing economy and polity of a country on the move.