From financial to calendar year
Vanam Jwala Narasimha Rao
Telangana Today (13-06-2017)
Prime Minister Narendra Modi proposed that the
financial year shall be the calendar year and should start from first January
and end with 31st December. He said that the country suffered
considerable losses due to haphazard economic and political policies and one
among them is the present practice of financial year. He further said that in
our country the agriculture income has its own importance and as such the
financial year shall commence and budget presentation take place, immediately
after the farmer gets the agriculture income. PM Modi made it clear that the
government is seriously thinking in favour of changing financial year as the
calendar year shortly.
Chief Minister K Chandrashekhar Rao has said that in tune
with the Centre’s thought process and in accordance with its proposed policy,
the state government has plans to introduce the Budget from one calendar year
to the next calendar year (January 1 to December 31). The CM had preliminary
discussions with the State’s Finance department and other higher officials in
this regard. Consequent to CM instructions State Finance Minister, the
Principal secretary and a team of senior officers have been studying the
context and background as well as the process undergone in implementing the
system in few states like Madhya Pradesh where the Budget has already been
presented in the new format i.e., calendar year to calendar year.
The Government of India’s Ministry of Finance in July 2016
constituted an expert committee under the Chairmanship of Dr Shankar Acharya
former Chief Economic Advisor to examine the desirability and feasibility of
changing Indian Financial Year from April-March to January-December, the
calendar year. The Committee has submitted its report to Finance Minister.
It has given the various merit and demerit of change of fiscal year and the
report is yet to be made public by the ministry. However, according to
sources, the committee has given reasoning for the change and its effect on the
different agricultural crop periods and its impact on businesses, taxation
systems and procedures, statistics and data collection. Besides Acharya, the
members of the committee are former Cabinet Secretary K M Chandrasekhar, Centre
for Policy Research Senior Fellow Rajiv Kumar and former Finance Secretary
Tamil Nadu P V Rajaraman. Interestingly, earlier also, an attempt was made by
Government of India in this regard, when it set-up a committee under the
Chairmanship of LK Jha in 1984 but nothing serious happened then though it
recommended for change to calendar year. Jha commented on the impact of
monsoons on Government’s budget. Various other committees and experts also
opined and recommended for change of financial year saying that changing the
financial year is a much-needed reform and advantageous.
According to Bibek Debroy Member NITI Aayog and Kishore Desai
Officer on Special Duty NITI Aayog, in a discussion note prepared by both
together on the need of changing India’s financial year, there are no global
practices or standards for choosing a financial year. Various countries follow
various methods. They however believe the appropriateness of the practice of
financial year from first April to 31st March as is observed in
India since 1867, has been questioned and debated, at various points of time
throughout its 150-year history. The present system of financial year in India
was adopted by the Government of India in 1867 prior to which it was from first
May of the current year to 30th April of the following year. The
change was effected basically to align the Indian financial year with that of
the British Government who were the then rulers in India. Many more interesting
issues are discussed in the discussion note of Debroy and Desai.
The “Budget System” in India has a history of more than 150
years. It was first introduced on 7th April 1860, two years after
the transfer of Indian Administration from East-India Company to British Crown.
According to the budget manual 2010 published by Ministry of Finance, James
Wilson, the first Finance Member of the Council delivered the budget speech
expounding the Indian financial policy as an integral whole for the first time.
The concept of having a one year period financial year or a
fiscal year has originated from the general practice of budgeting annually for
government finances. As early as 1865 itself before India adopted the present
system, a commission of enquiry headed by a former Paymaster-General suggested
that it be the calendar year but somehow it could not happen. During the
pre-independence era, the matter was examined by Welby Commission and the Royal
Commission of Indian Finance also known as Chamberlain Commission, but nothing
happened. Post-independence it attracted even more attention. The Constitution
of India did not explicitly define the financial year. In 1956,
as well as from time to time, the matter was raised in the National Development
Council where too there was a consensus for change. The Estimates Committee in
1958 favoured a change to commence from first October which was rejected by
Government. The first Administrative Reforms Commission in its report suggested
that from the perspective of accuracy of expenditure estimates in the budget,
first January would be the most suitable date. In 1983, the then Union Finance
Minister invited the views of the state Chief Ministers if they think the
financial year should change. Almost all the CMs who replied were in favour of
a change though their views were divided on the precise date of the
commencement of financial year. Several CMs suggested presentation of the
budget after the monsoon in the light of the knowledge of the monsoon and
kharif output. Many of them suggested synchronization with the calendar year.
The practice of continuing the Indian Financial Year from
first April to 31st March has been questioned many a times, though
unsuccessfully. When the decision was taken for having this period as financial
year, the sole consideration was to align with the British Government. Indian
and Local factors were not considered while deciding so. The prominent
consideration now for changing the financial year is the argument that the
government budgets are formed without any knowledge of south-west or south-east
monsoons which impact the socio-economic conditions character of the country
significantly. In other words, the government ends up in formulating budget
without reliable information about monsoon rains that significantly impacts the
agriculture sector, the rural economy, the overall economy in general and the
budgetary policy on the whole. Even from the point of view of other relevant
considerations such as optimum utilization of working season, national culture
and traditions, convenience of administration and legislators etc the existing
financial year does not fit according to Debroy and Desai.
Considering these factors and the current thinking of
Government of India and several Chief Ministers it is almost certain that the
financial year will be the calendar year only. End
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