Prime Minister Narendra Modi came up with an interesting suggestion during a NITI Aayog governing council meet. The Financial Year in India, runs from 1st April to 31st March. Why not change the financial year to January - December?
So why would the Prime Minister want such a change? The answer lies way back to the times of the British or more specifically, a 150 year old colonial era tradition. The financial year was fixed as 1st April to 31st March in the year 1867 by the English rulers, to align the Indian Financial Year with that of the British Government. Why should this colonial era practice be followed today?
A major benefit of switching the financial year to January -December? Agriculture. India is a country where agricultural income is very important. The Union Budget should be prepared immediately after the receipt of agricultural income for the year. More than 150 countries follow the January-December financial year.
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he Indian economy depends heavily on agriculture. The farmer in India looks to the monsoon for a bumper crop. Can the Government afford to ignore the Agricultural sector which contributes around 18% of the GDP?
The Kharif season in India is from July to October. The farmer depends heavily on the South West Monsoon which is from June to September for a bumper crop. More than 75% of India's annual rainfall is in this period. The Rabi season in India is from October to March. The farmer depends on North East Monsoons for a bumper crop.
Any financial year no matter when it begins and ends is affected by the South West Monsoon. If the monsoon fails in a particular financial year, not only will that financial year be affected, but also the next financial year. Ideally the Union Budget should be finalized in October, just after the South West Monsoon is complete and the Kharif crop is known. The Rabi crop could also be estimated. The Union Budget could be presented in November and the Financial Year could start in January.
Agricultural income is very important in India. Don't you think the financial year should be changed to January - December to help our farmers?
Changing the financial year could help MNC Companies
About 156 countries in the World have January - December as the financial year. Changing the financial year to January - December has a big benefit. This would be a brilliant move for the Indian economy, which would get integrated into the global economy.
Many MNC Companies in India deal with two financial years. Their parent Company could be dealing with a different financial year, compared to their Indian subsidiary. A uniform structure would be a big relief and help MNC's better manage their accounts.
Problems faced when changing the financial year
1. Maharashtra is unhappy with the change in financial year
Maharashtra a major State in India, is not happy with the change in the financial year. Maharashtra says that whenever big structural changes take place in the state's financial system, a lot of time and money is spent on administration and manpower. The GST (Goods and Services Tax), a mega tax reform, could be rolled out in July 2017. GST shifts the tax revenue base, from where goods are produced to where they are consumed. New systems would have to be put in place.
How will a major State like Maharashtra cope with the changes of GST and the financial year at the same time?
October, November and December are the festival seasons in India. It's the time of Navratri, Diwali and Christmas. Heavy shopping takes place in this season and retailers are very busy counting their money.
Any accounting activity at this time is complex and time consuming because of higher levels of inventory, receivables and payables. For retailers, December is definitely not the right month to close the financial year. Don't you agree?
Changing the financial year is definitely an excellent suggestion. It will give a boost to the agricultural sector, much to the delight of farmers. Many MNC Companies will be very happy with this change. There are a few problems, but these could be overcome. Be Wise, Get Rich.
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