Budget improvements-Change to new financial year.

Taken from out blog,”Brinks of economic thoughts”


Budget improvements-Change to new financial year.


Indian budget making process is witnessing many steps to the direction of improvement in budget making process. From 2017 we have seen merger of plan and non plan expenditure and now the budget dates, the day on which annual financial statement is laid on the table of house have also been changed to 1st February. A federal nation needs to check into the aspiration of the population who are residing even to far remote areas. Concept of cooperative federalism has gained prominence and now we are witnessing a scenario when more and more competitive cooperative federalism is taking place.


Our financial year starts from 1st April and continues till 31st  March .It is interesting history that how we arrived at this date which replicates the same dates on which budgetary exercises were conducted in UK,when we were  among the  colonial rule of the British crown. In UK 25thMarch is observed as Lady Day. Cultural reasons played a major role for commencement of financial year from 1stApril.

East India Company when ceded the administrative powers to British crown post 1857 war of Independence, we had budget dates as 1st May. It was in 1867 the financial year was changed from 1st April to 31st March. This enabled to align Indian accounting system to the British crown accounting systems at that time.

Post Independence we had Indian Independence Act 1935, which formed the major basis of our constitution. Article 112 for centre and 202 marked a point about the Annual financial statement for president and governor respectively, by central and state governments.


Our entire polity studies are in dilemma about what exactly is definition of a financial year. Although article 367 {1}.General clauses Act, makes a point about commencing from 1st April.


Till date many commissions conducted studies concluding that 1April-31st March FY is not suited for India.

Chamberlain commission 1913, Dinshaw Wacha 1921,1stARC 1966,LK Jha 1984 ,C Rangrajan 2011 and even lately Shankar Acharya commission in Dec 2016 concluded same findings.


India is dependent on good monsoons. A good monsoon enhances demands for FMCG to all consumer goods, increasing tax collection.

While drought years make it difficult to enhance income and so we see low demands, food inflation, and thus tight monetary policy by RBI. This will also lower water storage at dams and multipurpose projects thus lower electricity generation. It will altogether make difficult for industries to flourish and interest rates will also be high. Expenditure will be more while the Actual receipts will be less.


Many experts suggested to negate impact of less monsoon it is essential to change the FY.Actually currently Budget is tabled in February and passed till June, which makes it possible to send money to government agencies by July. In case monsoon fails, agencies since receive money late are unable to built irrigation facilities. Also by next year the assessments which are made are made by data which might be as old as 6 months.


Now in case if altogether the FY year is changed we may have latest data. Suggested dates can be 1st Jan, which has been consented by Central Statistic Organisation at UN will not be problematic in providing data. There are many other suggestion for better dates which actually ensure that money is at hands of agencies before commencement of monsoons, Things like advance tax collection have also been kept in mind.

It is transformation from reactionary to proactive policy making.

Nations like US have FY commencing from 1st October. Many nations like Pakistan have from 1st July. Many MNCs and nations like China have year from 1st Jan.

Altogether change may be problematic, so transitional stages can be done by phased manner.

Many complex tax issues may come up, but have got to be looked after. Interestingly few studies have suggested that we have overrated impact of monsoon on agriculture.

Overall it seems that we are moving towards a phase wise transition of our FY which would take into consideration the impacts of monsoon to fiscal deficit containment .


Harsh Vardhan Pathak

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