There may, or may not, be a lot to be said in favour of switching to a January-December financial year, but there are far more pressing reform issues that need to be addressed—privatisation, bank-recapitalisation-cum-NPA-resolution, labour flexibility, fixing subsidies, tax reform, etc, come to mind immediately. Yet, going by how the prime minister has gone public on the need for this, and how Madhya Pradesh has promptly switched to January-December gives the impression this is the government’s topmost priority—indeed, going by a Business Standard report, the government is already making preparations by advancing the Budget date to January instead of the end of February.
Given the majority of countries follow January-December and April-March is a British legacy, there is no harm in moving to the calendar year, but that’s about all. The main argument made by proponents is that, with 54% of agriculture still rain-fed and over half the population working in agriculture, the country’s fate is irrevocably tied to the monsoon and, to that extent, if the government has to take corrective action in case of a failed monsoon, it needs to do so early. If the main monsoon fails, a budget which—as now—ensures spending only by April or May is too late. If which case, as RBI does, a July-June year could be followed since, by June, the government has a pretty good idea of the likely monsoon. Of course, what’s more important is monsoon-proofing the country. That means more irrigation creation, the right price signals to ensure the right crops — and not water-guzzlers like rice and sugarcane—are grown in areas with poor rain. It also means building more capacity for storing water—India gets around 2,600 billion cubic metres (bcm) of rain and snow-melt in even a bad year while it needs around 1,100 bcm to meet all requirements but its capacity to store water is a mere 253 bcm.
Since these can’t be fixed in a year, moving to January-December seems a good solution as many argue a July-June year does not fully capture the progress of the monsoon. Except, that suggests, in a drought year, the government has the flexibility to make a big addition to expenditure in rural areas—it does not. And to the extent it needs to be supplying more fodder or water-trains to drought-hit areas or drought-resistant seeds, the machinery for this is quite independent of the budget—indeed, if a lot of additional expenditure is required, a mid-term supplementary grant in even an April-March year is quite easy to do. In any case, given the disruption GST will cause, it would be a good idea not to add to the uncertainty business faces till the situation stabilises for a year or two.