Finance ministry officials are likely to meet officials of the Prime Minister’s Office (PMO) on Wednesday to discuss the recommendations of the fiscal responsibility and budget management (FRBM) report and a possible change in the financial year.
These are two of the biggest fiscal issues that policymakers in the government are mulling over.
committee had recommended a fiscal deficit
target of 2.5 per cent of gross domestic product, and a revenue deficit of 0.8 per cent by fiscal year 2022-23, the end of its six-year medium-term fiscal road map. Other recommendations included setting up of a fiscal council and giving the government tightly defined escape clauses to enable deviation from the road map.
Meanwhile, there have been conflicting voices emanating from the government on changing the financial year cycle. While some officials have told Business Standard that a shift from April-March to January-December could happen as early as 2018, others have confirmed that such a shift, with short-term disruptions, might not happen so soon after the implementation of the goods and service tax.
The final decision rests with Prime Minister Narendra Modi. A senior government official confirmed that the PMO
would on Wednesday be given a presentation on the FRBM
report by finance ministry officials, and that this issue, as well as a change in the financial year, would be discussed.
As reported earlier, the finance ministry’s aim is to introduce a new FRBM
Bill in Parliament in the winter session. The planned presentation to the PMO
is said to contain not just the recommendations of the panel, but also those from a dissent note by Chief Economic Advisor Arvind Subramanian.
While the panel had suggested sticking with fiscal deficit
as the main target, Subramanian had suggested the focus of policymakers should be on reducing primary deficit.
Changing the financial year cycle will involve amending the Income Tax Act and the Companies Act, cutting the preceding fiscal year to three quarters, reworking the Centre’s balance sheet, new assessment year for tax matters, and presenting the Budget by December.
The central government had constituted a high-level committee under former chief economic advisor Shankar Acharya to examine “desirability and feasibility” of having a new financial year.
The report hasn’t been made public, but it is learnt that the panel has recommended sticking to an April-March financial year. However, a NITI Aayog concept paper written by its member Bibek Debroy favoured changing the financial year. Any change in financial year would be applicable to the Centre, the states and corporate India.
In May, Madhya Pradesh became the first state to switch to the January-December financial year from the April-March cycle. That decision came close on the heels of Prime Minister Narendra Modi making a pitch for shifting the financial year to January-December, during the NITI Aayog’s governing council meet in the national capital on April 23.
India has been following the April-March financial cycle since 1867, mainly to align the year with that of the British government.