Merits and Demerits of making Jan-Dec as a Financial Year

Merits and Demerits of making Jan-Dec as a Financial Year

“If it ain't broke, don't fix it”
- Anonymous

We know of many things that Indians continued after their independence, which were actually introduced by the British. Ranging from civil services to budgeting system to even criminal and civil procedure code, every sector has some or the other remnants of the British times. But away from all these more popular continuations, one thing that maybe very few know about, is the financial year of India i.e. April to March. Yes, it is a colonial remnant! This practice started around 1867, to bring the British India’s accounting in sync with Imperial Britain’s accounting. But recently talks are to shift it to January to December. After breaking away from one British tradition by merging the General Budget and Rail Budget, government of India is now set on breaking another one. However, some are posing counter-arguments for this move as they find it unnecessary upheaval. Let’s see what the two sides of this coin are.

Merits

1. Syncing with International practices - Internationally almost all developed countries follow the system of Jan-Dec fiscal year. In India it is still April-March and this leads to misalignment of financial years. This also impacts World’s and India’s data collection and dissemination from the perspective of national and global accounts.

2. Problematic for MNCs - Though we may criticize MNCs on various fronts, it is seen that they bring in business and employment. Since they have presence in multiple countries, they need to manage their accounts and deal with 2 types of fiscal years. That is exhausting, time consuming and increases their operational costs.

3. Including monsoon forecast in budget - Right now, in February budget, the government cannot include a solid forecast or data regarding agriculture since monsoon period is June-September. The Jan-Dec system can give better chance at predictions and can include them in budget formulations.

4. Rabi and Kharif data - Apart from monsoon, the Jan-Dec system also would be helpful to include Rabi, Kharif, Zaid crop seasons’ data while making the budget. Agricultural estimates are important as they are integrally related to industry especially consumer goods industry.

5. Current financial year led to sub-optimal utilization of working season - The working season is October to June/July. Budgetary allocation lapses by March end, and new allocations get approved by May end. But by June monsoon starts when development and construction works stop. Thus, almost 1-2 quarters are lost and are underutilized in April-March fiscal year.

6. April - March chosen without considering India - Current financial year cycle was chosen by British as per their needs. They showed no regards to national culture and traditions. Before the British, the financial year was May to April. Also, convenience of legislators too was not taken into consideration while continuing the British system after independence.

Demerits

1. Major changes needed - If we want Jan-Dec period then many major changes are needed like shifting Parliamentary Sessions, budget presentation in November-December, reorganizing tax infrastructure and its various laws, tax assessment year, etc.

2. Timing is not right - Already lots of changes are going on currently like the demonetization, GST, etc. This big structural change would add to already unstable economic scenario of India.

3. Effect on entire country up to company level - These major changes would lead to major disruption and not just at government level but up to the company level. When budget date was moved, it did not matter much as only government offices had to adjust accordingly. But now, in this case even small businesses would get affected.

4. One-time cost of implementation and time needed - The change in entire tax and its collection structure will lead to huge one-time cost for many companies as well as the government. Also, entire administrative machinery would get diverted to the problems of transition instead of concentrating on improving the tax collection machinery.

5. State level opposition - States like Maharashtra have opposed this idea as it says that major structural changes are underway in the state like the GST, merger of Plan and non-Plan expenditure, etc. Thus there is already lot of confusion in the states. This would add to this confusion and instability.

6. Coincide with holiday season - December is holiday season. Thus budgeting, fiscal year tax collection and payment, etc. in Jan-Dec system would come in the holiday season causing problems for the festive mood as well as sales of various goods.

7. Cost to Benefit ratio is not that great - Some critics say that the benefits may be there to Jan-Dec system but they are not that great or not that many to shift to that system, when present one working just fine.

8. More time would be needed for normalcy - 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.

The Shankar Acharya Committee constituted in July 2016 was in favor of changing the fiscal year to January-December. Even the previous Congress government had initiated this idea of change which was supported by many in the industry as well as political circle. Though there are advantages and disadvantages to it, the positives far outweigh the cons. In time to come the new fiscal year of Jan-Dec will show immediate result and help integrate Indian economy with the global one. There can be a debate on when exactly this move should be made, but almost all would agree that it is in Indian economy’s benefit to have this progressive and forward looking step. It is advisable to hold on right now till other structural changes like GST, etc. get settled down before bringing in such a big structural change in the economy.