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An unnecessary change?

THE ASIAN AGE. | PAWAN BALI
Published : Apr 27, 2017, 12:41 am IST
Updated : Apr 27, 2017, 6:44 am IST

Switching to a January-December financial year will not benefit the economy.

Agriculture itself may be small but its impact on GDP and inflation still continues to be very strong.
 Agriculture itself may be small but its impact on GDP and inflation still continues to be very strong.

On January 1, we will be on a weak wicket: Pronab Sen

Frankly, I don’t think it matters much what you chose as your financial year. The only thing that really matters is whether we have the information that is needed to frame the Budget properly. The critical element in this is the monsoon. And the question is that if we shift the fiscal year to January, do we have a better grip on agriculture than we had on April 1? If we have the financial year starting from April 1 then we need to have Budget on February1. On February 1, it is difficult to have detailed information about the kharif and rabi crops or the prospects of monsoon.

The actual information starts coming in from April. Now ask me the question — what will happen if you shift the budget to January 1: you will have full information on the rabi and less data on the next kharif. This is because rabi will be ongoing then. As far as kharif is concerned, you have none because you have no information about the next monsoon.

Another alternative which used to be considered was moving the financial year to July 1. On July 1, we will have full information on kharif and we will have a fair estimate of what is the soil moisture, groundwater and reservoir estimate. So we are better off on July 1. On April 1 we have some data, but on January 1 we have almost no data on future agriculture, which is both the coming kharif and coming rabi. So as far information is concerned, we will be on a weak wicket in January as far as agriculture is concerned. The revenue from agriculture is not the issue. The issue is we are able to predict with reasonably accuracy what will be the GDP growth. And agriculture continues to be a major component of GDP, it impacts both the demand side and prices. We can’t wish that away. Agriculture itself may be small but its impact on GDP and inflation still continues to be very strong. We can’t ignore that.

As far as infrastructure projects are concerned, let’s keep the calendar in mind. They are again impacted by the monsoon. Normally it takes 2-3 months to start expenditure on projects after the Budget. So with April 1 we are ready to spend around July, when the monsoon is happening. So we can’t spend and we have to wait till September. So we end up losing five months. If we move it to January then we will be able to start spending from April. So we will be able to spend in April and May and then stop for three months. So you end up losing three months instead of five months. But again, if we look at the other alternative, which is July 1, then we can plan beginning from September itself, which means we lose only two months. So on both counts I would say that July 1 is a better date to start the financial year than January 1.

Pronab Sen is a former chief statistician of India

It will benefit infrastructure projects: Arvind Mayaram
It will align the Indian financial system with the global financial system where the January to December cycle is being followed. We must remember that the April-March financial year was being followed because for a very long time we were an agrarian society. We were highly dependent on agricultural revenue. So in that scenario, the government could only make an assessment of taxes and revenue when the rabi crops (the crop which are sown in winter and harvested during spring) had come in. This was typically in February or March, during which time the government used to get an idea about the revenue. So April became the month from which the new financial year could start. However, over a period of time, our dependence on agriculture reduced, and the government’s revenue from agricultural taxes became miniscule. So logically, having the fiscal year start from January will be a good idea.

As per current tradition, even if the budgeting is done in February and the accounting year starts from April, the actual release of funds happens only from June or July. And then the monsoon strikes the country. Most of the construction work slows down during this period.

But if the fiscal year starts from January, as is being proposed by the Centre, it will mean that the Budget will be passed by the end of December. In such a scenario, the government will be able to release funds starting from January.

This will give the country a good six months of working season before the monsoon hits the country. There will be a much better implementation of the infrastructure projects in the country if the fiscal year starts from January.

So, it is a good decision to start the fiscal year from January from the infrastructure point of view. It will benefit infrastructure projects in the country. Of course, the changeover will be complex, it will take lot of coordination and lots of accounting will have to be done.

There will be an overlap for a year or so. However, I don’t agree with the argument of the associations that the changeover will be costly for corporates. What type of changes will they have to do? Everything will become January-December. One year could be difficult because of the transition. In that year, accounting will have to be done twice. But once the cycle starts going, it won’t be a problem. And the problem will not be for long.

Of course, changing the fiscal year to January-December will not make any difference in taxation for the government as many countries start their accounting year even in July. However, infrastructure projects will be benefitted.

Arvind Mayaram is a former finance and economic affairs secretary

Tags: monsoon, rabi crops, gdp