Redraw the calendar

There is a very strong case for moving the government’s fiscal year, to start around Deepavali.

Written by Bibek Debroy | Published: May 6, 2015 12:00 am
Indian express, express column The choice of April 1 to March 31 as the fiscal year for government expenditure and accounts is a colonial cum historical legacy.(Illustration by: C R Sasikumar)

It is not quite the case that every country follows a fiscal year from April 1 to March 31. By fiscal year, I mean one followed in government accounts and budgeting. Individuals and corporate taxpayers may well follow other fiscal years. India’s major crop seasons are kharif and rabi. Kharif crops are contingent on the south-west monsoon and are often water-intensive, such crops being harvested in September/ October. Rabi crops are harvested between February and April. Which is more important, kharif or rabi? With the exception of rice, primarily a kharif crop, that question cannot be answered. But most people will probably agree that kharif output, contingent on June-September monsoon, is more variable than rabi, which is affected by October-December post-monsoon precipitation. Therefore, if I wish to get a handle on how agriculture has done in a year, I need more of a handle on kharif than on rabi. There was a CSIR Calendar Reform Committee, chaired by Meghnad Saha, and it submitted a report in 1955, after examining 30-plus different calendars that existed in different parts of the country. Post this standardisation attempt, from 1957, the national calendar became the Saka era, credited to Kanishka. Under this national calendar, for an ordinary year, New Year is on March 22. For a leap year, New Year is on March 23. Year 0 for this calendar was the vernal equinox (when day and night are equal) in 78 CE.

I have no idea what happened to this national calendar. It seems to have sunk without a trace. While cutting through a maze of solar and lunar calendars was desirable, this calendar found no traction, both for New Year celebrations and for government accounts. What is New Year’s Day? Other than January 1, depending on the region, the answer will be either Phalguna Purnima (February/ March), or the first day of shukla paksha in Chaitra (March/ April), or April 13/ 14/ 15, or the first day of Chaitra (March/ April) or the second day of Chaitra. The mode (if that expression is to be used) does coincide with March 22/ 23. Pinning down a “harvest festival” is a trifle more subjective. Accordingly, to the New Year’s list, you might add December 21/ 22 (Lohri), Onam (August/ September) and Pongal/ Makar Sankranti (January 14/ 15). There is still a clustering in March/ April. But suppose I ask you a different question. Which is a pan-Indian festival, one that is observed almost everywhere in India? Forced to make a single choice, you will probably mention Deepavali (October/ November). Note that in some parts of India, New Year is celebrated on Deepavali day, or on the day after Deepavali. As is the case today, a traditional year needn’t coincide with the government’s fiscal year.

The choice of April 1 to March 31 as the fiscal year for government expenditure and accounts is a colonial cum historical legacy. We inherited it from the British and its introduction in Britain was also arbitrary, with April 5/ 6 having become April 1 for convenience. (Note that though the Julian to Gregorian shift changed the New Year in 1752, the tax year continued to be April 5/ 6.) Some countries have begun to shift fiscal years to calendar years, the argument being that this makes data internationally comparable. However, January 1 to December 31 is just as arbitrary, international practice notwithstanding. We should choose one that best suits our requirements and not necessarily be bound by colonial legacies. In the course of the year, in which month does one know how the economy is going to perform in that year? You will probably say October, which suggests that around Deepavali is a good time to start the fiscal year. There is a catch in this argument. Indirectly, it is based on the relative importance of kharif over rabi and the importance of agriculture (in employment, if not in sectoral contribution, especially rain-fed agriculture) in GDP. As irrigation spreads or as agriculture’s share declines, this should become less of an issue.

True, but is the importance of the southwest monsoon, relative to the north-east monsoon, going to decline? This is a climate question, not an agricultural one. In how many states is it possible to work on public construction projects between June and October, when the south-west monsoon is at its peak? Very few. A typical year works like this. Union budget — end of February. State budgets — March. Until the finance bill is passed (say, mid-May), little of what used to be called Plan expenditure can take off, certainly not in instances when there is devolution from the Union government. (Until the finance bill is passed, there is a ceiling on permissible expenditure.) Plan funds are released in June. If construction is involved, tenders are floated. However, rains have set in and tenders are probably not floated till September. Those tenders are scrutinised and decisions taken in November. Hence the bunching of expenditure in February/ March. I have caricatured a bit, but this is an acknowledged phenomenon. Since there are rarely any completely new schemes in any budget (Union or state), it is indeed possible to collapse this chain, by resorting to e-governance, e-budgeting and discussion and approvals of schemes before a formal budget announcement is made. If one does this, the chain effectively begins around November of the preceding year. While this is true, no e-governance and better G2G methods can eliminate the constraints of natural climate.

There is a very strong case for moving the government’s fiscal year, so that it starts around Deepavali. The mismatch between a Gregorian calendar date and a lunar tithi is hardly a problem. November 1 is as good a date as any. That’s the date when Delhi became a Union territory. When finance ministers make budget speeches, moving away from April 1 will get us away from Fools’ Day jokes and wisecracks about April being the cruellest month.

The writer is Member, NITI Aayog.

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Bibek Debroy
  1. A
    May 6, 2015 at 9:24 am
    A really good piece, indeed. I worked in a PSU steel plant, where, Jan. to March are considered high-production- months. Similar to what Author projected, in industries too, only 'estimates' are available early in incoming financial year! He hits the right note when he says, Budgets of Centre & States take time to be ped and truly are made effective much later in Calendar, by which time, much water would have flown down river Ganga! If not outright shifting to Deepavali, make it at least 1st JULY [ of this year ] to 30th JUNE [ of next year] . Author is totally right! ""IT IS AN ISSUE FOR ALL ACCOUNTING PURPOSES - BE IT PRODUCTION, FINANCE, FUNDS, PLANNING - NAME ANY FIELD"".
    1. S
      May 6, 2015 at 12:58 pm
      You're still an , Mr Debroy.
      1. G
        May 6, 2015 at 3:56 pm
        1. Saima Anwar
          May 7, 2015 at 4:20 pm
          What an unnecessary and illogical idea!!!!!
          1. D
            May 6, 2015 at 9:46 pm
            So, we will have a fourth reason to explain the fluidity in budget exercise in five years cycle viz., 2014-15 to 2018-19. First year (2014-15) is explained as a shortened year due to elections. Second year (2015-16) is explained by referring to 14th Finance Commission recommendations. Third year's uncertainty will be attributed to GST regime that starts on 1.4.2016. The remaining two years of this government can be attributed to changes in Fiscal year and related accounting adjustments. Thus, five years would have gone down the drain. In any case, a committee headed by L K Jha had examined this issue and gave its report in 1984. Its summary is available in the first chapter of Budget Manual issued by Finance Ministry in 2010. ministry/dept_eco_affairs/budget/Budget_Manual.pdf The hard copy of the Report ought to be available with the library of the Ministry of Finance. The transition problems ociated with any change of FY are listed there. So, why ignore LK Jha Report ?
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