India may make the calendar year, instead of April-March, as its new financial year from as early as 2018 as part of its efforts to align the accounting system with the most prevalent practice in the world, sources said.
The move is part of three major budget-related initiatives including merger of railway budget with the general budget (likely in 2017-18), and dropping of Plan and non-Plan distinction (certainly from 2017-18) in allocation of resources, an official said.
“If we are able to align our numbers with broader global numbers, it makes sense to make calendar year as financial year compared to April-March spread over two calendar years,” said Devendra Pant, chief economist at India Ratings.
Most of the major economies in the world, barring the notable exception of the US, have January-December as their financial year. Besides, most of the large global firms use calendar year for data reporting. Similarly, multilateral agencies such as World Bank, International Monetary Fund and Asian Development Bank use calendar year as financial year.
On July 6, the government set up a four-member panel headed by former chief economic adviser Shankar Acharya to examine the feasibility of changing India’s financial year.
“Committee will examine the merits & demerits of various dates for commencement of financial year including existing date (April to March),” the finance ministry had said. It will submit its report by December 31.
Other terms of the reference of the panel include the suitability of the financial year from the point of view of correct estimation of receipts and expenditure of central and state governments, the effect of different agricultural crop periods and the relationship of the financial year to the working season.
The panel will also factor in the likely impact on businesses, taxation systems and procedures, statistics and data collections and the convenience of the legislatures for transacting budget work.
Depending on the recommendation of the panel, “the change in the fiscal year will likely happen from 2018-2019,” the official said. If January-December financial year is implemented, India’s annual budget may have to shift to November from February now.
In 1867, the Britishers had introduced April-March financial year in India to align it with its own fiscal cycle. Prior to that, the financial year in India used to commence on May 1 and ended on April 30.
In 1984, the LK Jha committee had recommended that the financial year should start from January mainly considering the impact of the South-West monsoon on the economy. But, the government did not implement this fearing a large number of problems.
In the past
India’s financial year was ‘May-April’
British introduced ‘April-March’ as financial year in India
LK Jha panel recomm-ended making ‘January-December’ financial year; Govt did not accept, fearing transitional issues
Govt sets up a panel to examine feasibility of a new financial year