Shift in Financial Year - Will It Change anything?
By Abhishri Agarwal, 19 Sep 2016

After its last attempt in 1985, the Government of India is once again exploring the possibility of shifting the financial year (FY). A committee led by Shankar Acharya has been appointed to look into the issue and a discussion forum has been set up on, inviting inputs from the public. According to the website, the committee will be making its recommendations based on a number of factors relating to the government’s budget and cash management, the seasonality of revenues and expenditures, legislative cycles, alignment with international statistics etc. (GoI, 2016).

The announcement has been both welcomed and criticised. The most comprehensive argument in favour of the shift has been laid out in a discussion note by Bibek Debroy and Kishore Desai of the NITI Aayog. According to the authors, the South-West (SW) monsoon is crucial to the Indian agricultural sector, affecting both kharif and rabi crops. The current FY, in the words of Debroy and Desai, makes the government response to the monsoon more reactive than proactive, with decisions on allocations and investments being made without a reasonable idea of the monsoon. Based on this argument primarily (along with the incorporation of other factors such as the working season, national culture/traditions, international practices, impact on data collection and the convenience of legislators) the authors recommend a January to December shift in the financial year.  

However, according to the Indian Meteorological Department, the only body in India responsible for issuing operational long range forecasts, the first stage of the SW monsoon forecast occurs in Mid-April and the second stage, at the end of June (India Meteorological Department, 2016). Both forecasts would be of no relevance in the planning for a Jan-Dec cycle, work for which would begin around September. Moreover, carrying out the planning exercise during the months of September and October may prove difficult. Based on Accountability Initiative’s (AI) experience of working across Indian states, most government offices come to a standstill during this time owing to officials and frontline workers being on leave for the festive season. On all the other factors mentioned above, the impact of the shift in FY was noted to be either non-existent or slightly positive by the two authors.

Even in the case of matching international norms, a point which is often mentioned when arguing for a shift in the FY (Roychoudhury, 2016), the authors concluded that meeting India’s specific requirements was of much more significance. A lot of countries across the globe, most notably the United States, do not follow the calendar year.

Additionally, having observed fund flow mechanisms and bureaucratic processes over nearly a decade, AI’s research has found that it is delays within the system that lead to inefficient public expenditure. For instance, it has been repeatedly revealed that schools receive funds only in the third or fourth quarters and are then hard pressed to spend them before the year ends. Moreover, most money received by schools is tied, which leads to inefficient spending. Changing the financial year will not be able to solve such issues that are intrinsic in the system. The government’s recent decision to shift the budget to the first week of February is indicative of its understanding of this problem, as an earlier budget will enable better planning and execution.

For further reading on budget allocation and expenditure in states and local governments, click here

Abhishri Agarwal works on the PAISA project in Chhattisgarh. Her expertise include Public Policy and Finance. 

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