Different clocks: Changes in financial year need Centre-States coordination

Madhya Pradesh has decided to shift its financial year that now runs from April 1 to March 31, to align it with the Gregorian calendar year – that is, January 1 to December 31. The idea is not new and has been floated a few times, before as well as after Independence. Yet, the M.P. government’s move is abrupt as there was no hint of this plan when it presented its 2017-18 Budget a couple of months ago. That it was announced less than 10 days after Prime Minister Narendra Modi asked Chief Ministers to ‘take the initiative’ on suggestions to change the financial year indicates that the desire to be the first to act on his words accounts for the haste. The next State Budget will be presented in December or January, but the State’s transition plan for the changeover isn’t clear beyond its intent to speed up spending of funds earmarked in its Budget for the 12 months until March 2018, so that they are utilised by December 2017. There have been similar instances of BJP-administered States rushing into reforms where the Centre was reluctant or non-committal – such as labour laws – with little changing on the ground. A fiscal year rejig is not something that can be left to the States alone.
On its part, the Centre had appointed a committee under former Chief Economic Adviser Shankar Acharya on the desirability and feasibility of changing the fiscal year in line with the calendar year, aligning it with the practice in most countries as well as multilateral agencies. Its recommendations are still not in the public domain. The Union Budget was shifted from February 28 to February 1 this year, to ensure that funds are available with ministries from the first day of the financial year. By the same logic, will it be advanced further to November 1 if the financial year starts in January? Otherwise, eager States such as M.P. may start 2018 with a clean slate but will have to wait till February for clarity on the Union government’s priorities for the coming year and till April for Central funds. Going forward with different financial years in the States while taking no action at the Centre would be chaotic. It will, in addition, be a fresh nightmare for firms adapting to the Goods and Services Tax regime that will be introduced in the middle of this financial year. Additional uncertainties and differing tax deadlines for States are not likely to enthuse investors. Getting rid of colonial-era conventions may be necessary to make administration more efficient, but it is equally important to think through the reforms and work out a viable sequence. The Centre must make the Shankar Acharya panel report public, and clarify its own road map so that States and taxpayers may align with it.

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