Adjusting The Calendar, Financially 

In 1984, the Congress government passed a resolution to constitute a committee to assess the need to change the financial year under the chairmanship of LK Jha, the then chairman of the Economic Administration Reforms Commission.

The committee concluded that January-December should be made the financial year, as it would enable the budget to be presented at a time when the size of the kharif crop would be known, and a preview of rabi crop will be possible. The committe believed that aligning the financial year to the calendar year would also help in the compilation of statistical data for purposes of national accounts, in line with international standards.

The government of the day, did not accept the committee’s recommendations.

Another Committee, Same Mandate

Thirty-two years later, on July 6, 2016, the central government has again formed a committee to assess the “desirability” and “feasibility” of changing the financial year from the current April-March cycle. The committee will be chaired by Shankar Acharya, the former chief economic adviser to the government of India. The committee will consider factors like:

• Correct estimation of receipts and expenditure of both central and state governments.
  
• Effect of the different agricultural crop periods.
  
• Relationship of financial year to the working season.
  
• Impact on businesses.
  
• Taxation systems and procedures.
  
• Statistics and data collection.
  

“The committee will give its recommendations by December 31, 2016,” Finance Minister Arun Jaitley said in a reply to a question in the Rajya Sabha. Once the committee comes out with a recommendation to change the financial year, it will also work out the modalities for effecting the change, the finance minister added.

January to December? July to June? October to September?

“There is no need to change the financial year, except there is one argument that internationally, generally it is the calendar year”, Amarjit Chopra, the past-president of the Institute of Chartered Accounts of India, said in a phone interview.

“There is no international standard… what you call international standards, are not international standards, it is just a convention followed by the International Monetary Fund. Most countries in the world do not follow the calendar year. Every country has its own cycle,” Pronab Sen, the former chairman of the National Statistical Commission, said in a phone interview.

Sen believes that if better planning for the budget and maximum amount of time to implement programmes is considered, having July-June as the financial year is a better option. The government will have a very good idea about monsoons, and a fairly decent idea about the ground water level position for the rabi crops, Sen explained.

Amarjit Chopra thinks the financial year should commence from October 1 as the budget would then have realistic figures of the monsoon, which depicts the demand from agricultural sector, and the quantity of raw materials required. This will also help in keeping a check on inflation, Chopra said.

Financial Year Change & India Inc

A new financial year will not only mean change in book-keeping methods, but also changes to the accounting software that companies use, and the taxation system that’s being followed. All this will involve costs for the companies.

Sen adds that if and when the government decides to adopt the new financial year, corporates should be given a transition period. The LK Jha committee had also recommended some relaxations for companies.

“What is the rationale behind changing the financial year? This is all unnecessary work that is being done,” Kiran Mazumdar Shaw, the chairperson and managing director of Biocon Ltd., said in a phone interview.

She said companies are currently dealing with the change in accounting standards, since all companies have to adhere to Ind-AS, or Indian Accounting Standards, by April 2017. “Now, the next thing the government wants companies to do is change the accounting year,” she said.