Not a real reform

There is little logic in changing the financial year

A few months after advancing the date of presentation of the Union Budget, Prime Minister Narendra Modi has now asked state governments to consider changing the financial year to January-December. This, in turn, will imply advancing the date for Budget presentation yet again. Mr Modi has reportedly argued that in a country like India, where agricultural income is extremely important, Budgets should be prepared immediately after the receipt of agricultural income for the year. This is not a new demand: The call for changing the financial year has been coming up with unfailing regularity, especially when the country experiences widespread drought. Following the droughts of the late 1970s and early 1980s, the government had set up a committee under L K Jha. The Modi government, too, had asked the same question of an expert committee, which submitted its report in December but has chosen not to make its recommendations public. The question that arises is if the government had made up its mind on changing the financial year, why go through the motions of setting up a committee? 

Even the argument proffered by the prime minister for changing the financial year is not a new one — the central argument has always been about the monsoon and its impact on resource utilisation and Budget-making. In a note on this matter, which is available on the NITI Aayog website, Bibek Debroy and Kishore Desai have argued in favour of changing the financial year. Looking at the Budget timelines, they argue that by the time the government authorises fresh allocations, the impact of the previous south-west monsoon is well over and by the time fresh allocations reach ground-level officials, the next south-west monsoon is just about to set in, thereby leaving no space for course correction. Add to that the fact that the agriculture sector accounts for almost half the workforce employed in the country. 

However, there are several reasons against such a change. For one, almost all significant economic entities in India will have to change their accounting. So instead of being just a change of one Budget, this move will require an institutional change across the economy involving serious transitional costs. The move will bring about a massive disruption at a time when the financial system in India could do with some stability. Already, India is shifting to a new accounting standard in Ind-AS. Later on in the year there will be substantial upheaval because of the shift to the goods and services tax regime. Moreover, the argument for bringing statistics in line with global norms is weak because there is no standard global practice in this regard. This change is unlikely to help India attract more investments because it is not the variable holding them off in the first place. Lastly, this move will further obfuscate the already diminishing clarity in India’s economic data. Statistical systems in the country could do without another shock that mars comparability of gross domestic product and related data. As regards the age-old argument about the impact of the monsoon on agriculture, it must be borne in mind that crop agriculture that is directly affected by the monsoon accounts for just about 11 per cent of India’s gross domestic product. In sum, this is a shock the Indian economy can well avoid.