In a recent Niti Aayog meeting, just as the members were beginning to nod off, Prime Minister Modi jolted them awake. Get down, pronto, to the task of aligning the country’s financial year with the calendar year, he sternly reminded them.
The powers-that-be had assumed that this issue will be relegated to the background, since a committee was looking in to the ‘desirability’ and ‘feasibility’ of the issue. The public had also adequately raved and ranted on the matter in the comments section of the Centre’s website last year.
But the PM, fresh from the success of stopping the railway budget on its tracks, now wants destroy another vestige of the colonial era — the period considered for the country’s financial year. Taking cue, BJP-ruled Madhya Pradesh was the first off the block announcing its decision to go for the change last week.
What is it?
To ensure uniformity and enable comparison, countries tend to have a fixed 12-month period as their accounting year. This period is called fiscal or financial year. Companies, States and other entities also generally toe the line. In some countries however, the fiscal years followed by the Government and companies are different. India’s fiscal year is from April 1 to March 31. This came about because the British preferred to begin their financial year on Lady’s Day, on March 25, since this was one of the days in the year when rents were paid in the UK; eons ago. When the Gregorian calendar was adopted by the British, the fiscal year for Britain moved to April 6, and there it stays, till date. When the British Raj spread across the world, its financial year was imposed in all colonies including India, Hong Kong and Canada.
The PM is not wrong in asking for a reset. There is really no reason why the fiscal year of the country should begin on All Fool’s Day, just because the British monarch ordained it.
Why is it important?
The Centre says that changing the financial year will help in aligning it with the farmers’ income flows. While that argument is a little weak given the falling share of agriculture in the country’s economy, the change will help Indian companies that have associated entities in overseas jurisdictions. Since most countries use the Gregorian calendar year (January to December) as their financial year, consolidating financial statements will be easier. Comparing the macro data with other countries will also be much simpler as many multi-lateral agencies such as the IMF and the World Bank give projections for the calendar year.
But implementation needs to be well planned to prevent disruptions of the kind witnessed during the recent demonetisation. Also, the changeover can be put off until companies have settled down with the GST laws and new accounting standards — IndAS.
Why should I care?
It will give you yet another of those chest-thumping, ‘no one can dictate terms to us’ moments, if you care for it. But besides this, it will make life simpler for those who find it confusing to figure out what happened to the country and companies in a period that straddles two calendar years. Financial year 2017 for instance, begins in April 2016 and ends in March 2017. It would have been easier if FY 2017 started in January and ended in December 2017.
The bottomline
The count-down for the change has begun. Keep your (y)ear to the ground.