Chanakya IAS Academy Blog


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

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

Madhya Pradesh has decided to change its financial year that currently runs from April 1 to March 31 and align it with the Gregorian calendar year, January 1 to December 31.

The announcement came less than 10 days after Prime Minister Narendra Modi had asked the Chief Ministers to take the initiative to change the financial year. The decision also indicates the desire to be the first to act on his words as there was no hint of this plan when it presented its 2017-18 Budget.

Desirability and feasibility of changing the financial year in line with the calendar year:

  • To align the fiscal year with the practice followed in most countries as well as multilateral agencies
  • A committee under Shankar Acharya, former Chief Economic Adviser, was appointed by the Centre to analyze the feasibility of changing the financial year
  • To ensure that funds are available from the beginning of the financial year the union budget was shifted from February 28 to February 1
  • The change will align the financial year with the monsoon cycle and the country’s agricultural harvests

Concerns that need to be addressed:

  • If states shift their financial year and the Centre continues with the existing financial year, states have to wait till February for clarity on the Union government’s priorities for the coming year and till April for Central funds
  • Thus, it will create a chaotic situation
  • Changing colonial era conventions is necessary to make administration more efficient but it is also equally important to discuss and deliberate upon the changes, before the reforms are implemented
  • To ensure this, Centre must make the report of the Shankar Acharya panel public and clarify its own road map so that States and the taxpayers may align with it
  • GST regime, which is being introduced in the middle of the year has already raised concern among investors and firms. Fresh uncertainties will further dampen investments
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