Chief economic adviser Arvind Subramanian dropped a loud hint on Friday that India may wind down the 150-year old practice of an April-March financial year, a move that can disrupt a string activities from accounts’ finalisation, to tax returns filing and budget presentation.
In a signed preface of the Economic Survey’s second volume, tabled in Parliament, Subramanian said that continuing with the practice of presenting the survey in two volumes six months apart will depend on the timing of future union budgets.
“Whether this practice of issuing two volumes continues will depend in part on the future timing of the Budget calendar,” Subramanian said in the Survey’s preface.
The second volume is a departure from the past where the survey, often described the government’s official economic report card, came as a single volume divided into two parts—commentary and outlook in the first, and statistics in the second.
The first part of the survey was tabled in the last of week of January following the budget’s advancement by a month, prompting a modification to a new construct of two volumes presented nearly six months apart.
“Since Volume 2 appears almost half a year (an event-rich period with GST implementation, demonetisation impacts, farm stress etc.) after Volume 1, a fresh macro-economic update with an analytical review of the pressing issues seemed necessary,” Subramanian said. This may again change if India changes the financial year.
Different countries follow different financial years. For instance, the financial year in the US runs from October 1 to September 30, while the Australian financial year runs from July 1 to June 30. China follows a January 1 to December 31 financial year. Countries such as Canada, United Kingdom (UK), New Zealand, Hong Kong and Japan follow an April 1-March 31 financial year, similar to India.
One main argument in favour of moving away from the existing cycle is that the June-September monsoon rains, often described as the Indian economy’s lifeblood, sets in barely two months into the financial year, making policy making difficult.
The April-March financial year cycle was adopted in 1867 principally to align the Indian fiscal with that of the British government. A government-appointment committee headed by former CEA Shankar Acharya has submitted its report to finance minister Arun Jaitley on merits and demerits of changing the financial year.
The Parliamentary Standing Committee on Finance has also recommended shifting the financial year to the January-December period.
Prime Minister Narendra Modi had said that there was a need to develop robust arrangements that could function amid diversity. “Because of poor time management, many good initiatives and schemes had failed to deliver the anticipated results,” the prime minister had said, arguing for the need to change the financial year.Madhya Pradesh became the first state to announce shifting of its financial year format to January-December from 2018.