Financial Year : Another paradigm shift? (Part I)

Introduction to the Issue 

It has been almost 140 years that we are following financial year as 1st April to 31st March. In the recent NITI Aayog’ governing council meet and in the meet of BJP’s Chief Ministers’ presided by the Hon’ble Prime Minister of India, an issue discussed nearly for same number of years as it’s introduction was again brought back into consideration i.e. shifting financial year to 1st January to 31st December.  We at Polinomist have analyzed the ins and outs of such a decision that would be bearing on the finances and politics of the country per se.

Before entering into the scenario where we would analyze the brief history how this system of financial year came into practice in India.  It was not before the year 1867 financial year in India commenced on 1st April and ended on 31st March prior to which the same was 1st May to 30th April. The purpose behind the same was to get the same aligned with the British Government.

However it is pertinent to note that the said decision which was only taken for administrative easiness totally ignored the geographical attributes of the country, the occupation pattern and most importantly the monsoon which is and was a key in the nation’s economic progress and prosperity. However, in the current regime apart from aforesaid difficulties more complications have emerged by the existing system of financial year.

The same factor was considered almost various times .viz as earlier as in the year 1870 and further during the years 1900, 1908, 1914, 1921, 1954 and many more times till the current constitution of an expert committee under the chairmanship of Dr. Shakar Acharya  ( former Chief Economic Advisor).

However, most rigorous exercise in this regard was carried out by the committee set up under the chair of Shri L.K. Jha which  had corresponded to finance minister by stating –

“It seemed to us that making January-December the financial year would be the most advantageous from this point of view, as it would enable the budget to be presented in November when the size of the kharif crop would be known,and a preview of the rabi crop would be possible.The choice would also be helpful in the compilation of statistical data for purposes of National Accounts, in line with international practice, and do away with the confusion caused by having to refer to the financial year for some purposes and the calendar year for others”.

The Government of India reviewed the suggestions and considerations made by the aforesaid committee, however gave the following reasons for maintaning the status-quo:

  • The advantages arising out of the change would only be marginal in view of the innumerable considerations in the formulation of budget policies;
  • Change in the financial year would upset the collection of data and it might take a long time to return to normalcy in this regard; and
  • The change would create a large number of problems, as extensive amendments to tax laws and systems, financial procedures relating to expenditure authorization and other matters would become necessary and in that process the administrative machinery would get diverted to the problems of transition instead of concentrating on improving the tax collection machinery.

With a recent committee being formed and taking into consideration the decisiveness reflecting in the working of the current Government, decision to such an effect would mark an end to such a century old debate and discussion making financial year same as that of calendar year.

We would shortly bring before you the need, analysis and impacts of such a major change in all its aspects and totality.

©Polinomist

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