The government’s efforts towards deciding on a change in India’s financial year cycle took another step on Wednesday with a Niti Aayog panel indicating its inclination towards a merger of the financial year with the calendar year — January to December.
The panel headed by Niti Aayog member Bibek Debroy has prepared a detailed note on the history, need, legal provisions for and the way forward in India’s search for an alternative budgeting cycle. This comes days after the finance ministry set up a panel headed by former chief economic adviser Shankar Acharya to examine this matter. The Niti note is to complement that process. Going into the history of India’s budgeting cycle, the panel notes that the system of observing April-March as financial year was formalised in 1867 to sync with the British system.
“Since then, the appropriateness of this practice has been questioned at various points of time throughout its 150 year history,” says the note.
The need for a change in the financial year is felt because the present financial year did not allow the government to account for the impact of monsoon rains or the onset of the south-west monsoon while allocating scarce budgetary resources. “This limitation significantly impacted the investment planning outputs of the Budget,” the note says.
In fact, with careful reproduction of recommendations made by various committees in the past, the latest being by the LK Jha Committee in 1984, the Niti note talks more about what the new financial year cycle should be, and not necessarily about whether the present system should be changed at all.
The note says that various committees in the past differed on what it should be changed to. If one committee favoured a November-October year, while some other recommended October-September and January-December. This is because, after the onset of south-west monsoon, the government might have a better idea on where the economy stands and how much resource needs to be allocated in which sector.
“Interestingly, serious demands for changing the financial year seem to be, at times, preceded by drought years or years when the monsoon rains were bad. Given that the country saw a serious deficit in monsoon rains consecutively for the last 2 years – 2014 and 2015, a fresh attempt is being made to revisit this aspect,” it says. The note also points out that during the last serious effort like this in the early 1980s, the Centre had sought views of the states and almost all the chief ministers had favoured changing the financial year cycle. Where they differed was on a new date.