The debate about changing the financial year is back with PM Narendra Modi prodding the states, and Madhya Pradesh already taking the lead. The rationale behind sticking to the colonial April-March financial year has been questioned many times, but all efforts remained unsuccessful until now.
The ‘for’ camp says the current system doesn’t account for monsoon impact while allocating scarce budget resources, limiting investment planning and leading to sub-optimal utilisation of the working season. Those against it say any change could disrupt data collection, requires expensive amendments, and temporarily prevents the government from improving tax collections, which in other words is like asking, why fix something that ain't broken?
The existing system works just fine, but a calendar year, some say, can reorient the budget exercise, and deliver superior performance. Unlike the 1950s when agriculture contributed over 50 per cent to the economy, its share has now fallen to 17 per cent. Nevertheless, it’s a crucial cog. As per former RBI governor Dr C Rangarajan’s research, a one per cent rise in agricultural output increases industrial production and national income by 0.5 and 0.7 per cent respectively.
Budget policies involve complex balancing of receipts and expenditure, deficit targets, performance of ministries, political and economic imperatives. It's difficult to delineate the benefits derived by merely changing the financial year, but without considering the monsoon impact, the budget is ending up as a 'reactive' intervention than a proactive tool.
Even the CSO believes a change will align us with the UN. Now, of the 35 important data points, 11 are compiled on a calendar year basis and 22 as per the financial year. A shift potentially improves the quality of interventions and accelerates rural transformation. But first, all states need to be on board and amendments to the Constitution made, besides changes in direct and indirect taxation—all without a glitch, which is easier said than done.