www.nareshminocha.com

Font Size

SCREEN

Profile

Menu Style

Cpanel
The Finance Ministry pulled a dead rabbit from its hat on 6th July 2016 by announcing formation of a high-profile committee to “examine the desirability and feasibility of having ‘a new financial year’.” This idea has been revived, debated & buried time and again with zero outcome over the last 146 years!
Has the Ministry run short of reforms initiatives? Or does it want to flaunt the intended change in financial year (FY) as flagship initiative of Transforming India campaign? 
The Government should reconsider its decision. The Ministry should wind up the committee before it settles down to work. Alternatively, the Committee’s mandate should be altered. It should be asked to study unimplemented and failed reforms in the financial domain and recommend steps for their revival.   
This is the 10th time since 1870 that the idea of shuffling the start and close of 12-month financial year (FY) is being considered primarily to improve budgeting and governance.  The ultimate outcome of the latest initiative is also expected to be status quo as unanimity on this issue is impossible to achieve as happened in the past.
Moreover, the intended change is not worth the web of legislative and administrative efforts that would be needed in shifting FY that currently begins on 1st April and ends on 31st March. The change might perhaps also require amendment of Article 366 of the Constitution as suggested by an earlier committee. 
Reckon also the disruption and inconvenience the avoidable change would cause to all stakeholders of the economy especially to income tax department and tax-payers. 
It is here pertinent to ruminate over what late Indira Gandhi stated while chairing a meeting of now defunct National Development Council (NDC) during April 1969. Mrs. Gandhi observed: “The matter had been reviewed eight times but on no occasion had they been able to get any agreement because the working season and the crop season varied from State to State and different groups of States wanted different financial years. The matter could be discussed again the 9th or the 10th time.”
The 9th opportunity to reignite the debate on FY change was seized by President Pranab Mukherjee, during his first stint as Finance Minister. He had announced his decision to set up a committee to study this issue as part of budget speech for 1984-85. And incumbent minister Arun Jaitley has now availed of the 10th chance and hopefully the last one. 
The 1984 Committee chaired by veteran economic administrator Late L.K. Jha, did an excellent job in studying FY change proposals right from the Raj Era. The Committee also commissioned specific studies to unravel the issue from all angles. The studies/papers included 1) Impact that difference in a good and bad agricultural year makes on major macro indicators; 2) Inter-link between a poor monsoon and rise in prices and 3) A report by Committee’s working group on reforms in administrative procedures relating to pre-budget scrutiny, expenditure sanctions, etc. 
Jha Committee also based its report on replies to 12-point questionnaire that it mailed to State Governments. After reading its two-volume report, even an Aam Aadmi would realize how futile is the present attempt to restudy the idea of changing FY.
A layman would wonder whether change in FY would put an end to creative accounting in Government budgets. He would ask: Would the change in FY enable Finance Ministers to reintroduce zero-base budgeting? Would change in FY enable the Government to wipe out ever-rising tax arrears? Would it help the Government do away with cost and time over-runs of projects? Would it put an end to the practice of delaying payments to contractors and subsidies to price-controlled industries? 
A few more questions that have to be addressed by votaries of FY change: Would the change empower the Government to implement tonnes of good suggestions made by CAG over the years for improvement in finances? Would the change reduce the urge of Neta-Babu combine to waste time giving trite speeches at networking seminars? Would it reduce the temptation of powers that be to go on overseas jaunts? 
Would FY change help judges to skip summer vacations and thus render faster justice? Would change enable public sector bank and insurance staff to improve customer service? Would change in FY enable Railways to run trains on time? Would change in FY enable Air India to turnaround? 
Many more such questions should he answered by Modi Government before opting for change in FY, assuming all logic against the change fails to work.  
After considering all pros and cons of any change in FY and evaluating all options of change, Jha Committee cautiously recommended that if Government wants to change FY, then it should opt for 1st January-31st December as new FY. And the Finance Ministry wisely opted for status quo while accepting committee’s recommendations on a slew of budgetary reforms. 
In a detailed statement presented to Parliament on 1st April 1986, justifying Government’s decision not to change FY, Finance Ministry stated: “The advantages and disadvantages of a change over from the existing financial year have been carefully considered. So far as impact of behaviour of the South-West monsoon on the budget is concerned, the advantage in changing the financial year might be only marginal in view of the innumerable considerations in the formulation of budget policies which cannot be predicated only on the immediately preceding South West monsoon.”
The Statement continued: “As regards uniformity in statistical series, the changes that would be necessitated by a change in the financial year may upset the collection of data and it may take a long time to return to normalcy in this regard.”
The Ministry also noted that FY change would necessitate “extensive amendments to tax laws and rules would become necessary. The administrative machinery particularly at the policy and directional level will get diverted to problems of transition instead of concentrating on improving the tax collection machinery. A similar problem will also be faced by States.” 
The Statement added: “All the State Governments who were consulted except four agreed with the above conclusion.” 
Even there was no unanimity about the new FY among the four States that were smitten by the idea of change. 
Coming to Modi Government’s initiative, the latest Committee has the mandate to examine the merit and demerits of various dates for the commencement of the FY including the existing date, taking into account the genesis of current FY and the studies made in the past on changing FY. 
Chaired by Dr. Shankar Acharya, former Chief Economic Advisor, the Committee  is also required to study the suitability of FY from point of view of correct estimation of receipts of central and state governments, the effect of the different agricultural periods, the relationship of FY to the working season, impact on business, taxation systems etc.
It is not clear how much inspiration Finance Ministry has drawn from Niti Aayog Member, Bibek Debroy, who penned an article on FY change in a pink daily in April 2015. 
Dr. Debroy concluded his column with a punch: “There is a very strong case for moving government’s fiscal year, so that it starts around Deepavali. The mismatch between a Gregorian calendar date and a lunar tithi is hardly a problem. November 1 is as good a date as any. That’s the date when Delhi became a Union Territory. When FMs make budget speeches, moving away from April 1 will get us away from Fools’ Day jokes and wisecracks about April being the cruellest month.”
It is quite possible that FY change idea has been kindled by recent changes in FY being made by a few countries such as Qatar and Fiji.
As for genesis of present FY, this subject was investigated by Jha Committee. It found that prior to 1867, India’s FY commenced on 1st May and ended on 30th April. A file in National Archives accessed by the Committee shows two Britishers suggested in 1865 that FY should commence from 1st January.
The report says: “The question was considered by the then Secretary of State in 1866 and the view was finally taken that the financial year should commence on 1st April in conformity with the British practice.”
In India, the primary reason for demand for change in FY is driven by monsoon and its good and bad fall-out such as drought and floods. The impact of summer monsoon on the budget has, however, declined due to improvement in budgetary mechanism.
A case in point is setting up of a slew of national, state and district disaster management funds created under Disaster Management Act. These funds cushion the impact of monsoon-linked drought and floods on Union and State budgets. 
Moreover, the economy has undergone structural changes especially with the emergence of robust services sector and healthy stream of services tax over the last 25 years. In any case, agriculture sector hardly contributes directly to the Union revenue receipts. 
More than the monsoon’s impact, the Government should be concerned over the knock-on effect of volatility in global economy on budget estimates in any given year. 
With growing globalization of economy, obsession with impact of monsoon on Union & State budgets should dissipate. All Governments should, in fact, be more concerned about efficiency in revenue collections, fiscal discipline and expenditure management. And these three parameters have nothing to do with FY. These parameters are influenced by political commitment to good governance & to draw Lakshman Rekha on populism
As recorded in NDC minutes of meeting held in April 1969, “No Financial Year can be perfect from all angles especially for a large federal country like India. A choice has therefore, necessarily to be made between the various alternatives on the basis of their relative advantages and on overall considerations. The problems that any change-over will give rise to especially during the transitional period will also have to be kept in view.” 
With this perspective in view, NDC “was generally of the view that no change need be made in the financial year and that it should continue to begin from 1st April each year.”
As for the need for Finance Ministry paying attention to meaty reforms and innovations, the Ministry should ask Dr. Acharya Committee to explore the idea of announcing a five-year budget to avoid changes in tax rates. The proposed budget should be synchronized with five-year foreign trade policy and recommendations of Finance Commission. The proposed Budget should also be aligned with five-year plan, assuming this concept is not scrapped by Modi Government as extension of its earlier decision to wind up Planning Commission. 
The Committee should weigh the advantage of certainty and clarity that 5-yr stable tax regime would bring to working of economy especially businesses and the resulting impact on tax buoyancy & GDP growth. 
Five-year budgeting does not mean the Ministry should do away with supplementary demand for grants and revision of tariff during the war or the grave natural disaster. 
The Committee’s charter should also include recommending merger of all surcharges and cess into basic or primary taxes. It should suggest mechanism to ban the practice of introducing multiple surcharges on taxes that make paying taxes a hellish job for both tax payers and tax collectors.
Dr. Acharya Committee should also be empowered to fix responsibility for not implementing the non-binding reforms recommendations of Finance Commission made over the years. The Committee should be asked to retrieve all FC recommendations and list ones which should be implemented and the ones which can’t be. 
The revised terms of reference (TOR) of the Committee should envisage revival of NDA-I’s move strengthen Comptroller and Auditor General (CAG) through legislative initiative. The Committee should detail the delay in acting on CAG’s request to enact a new law to replace outdated Comptroller and Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971. The Committee should recommend empowerment of CAG to audit new-age crony capitalism –Public Private Partnership (PPP) projects.
The Committee should recommend measures to revive zero-base budgeting and to provide for its strict implementation by all ministries and their appendages. The Committee should also be asked to retrieve all recommendation on expenditure reforms made by numerous panels over the decades. It should identify the ideas that are still relevant for implementation. 
The Committee should be given free hand to probe all cases where delays by Finance Ministry in giving its recommendations on proposals of other ministries have affected economic growth.  
The Last but not the least the Committee should list a detailed transparency charter for Finance Ministry. There is no shortage of ideas to perk up Finance Ministry’s role as fountainhead of economic reforms and innovation. And the best way to undertake credible reforms is to first reform the working of Finance Ministry.
Will the Ministry dismiss these ideas as outlandish or bite the reforms bullet? 
                                                      
Published by taxindiaonline.com on 15th July 2016

Add comment


Security code
Refresh

Comments   

 
0 #1 gold price 2017-10-13 14:48
Hey! I could have sworn I've been to this site before but after
checking through some of the post I realized it's new to me.
Anyhow, I'm definitely glad I found it and I'll
be bookmarking and checking back often!
Quote
 
You are here: Home Economic Reforms Drop Idea of New Financial Year; Focus on Tough Reforms