Many government agencies, including the Prime Minister and Finance Minister of India, have pitched for a change in India’s financial year (FY) from the current April-March to a new January-December cycle. The state of Madhya Pradesh was the first to announce a formal shift to the new FY from the subsequent preparation of accounts and many more are set to follow, given the BJP ruling in the majority of states presently.
But will this change be beneficial, or for that matter is it at all required, given that Indian companies and governments (center, states and local) have been preparing their accounts in the present April-March format since more than a century? Let’s find out.
Financial statements are nothing but a comprehensive summary of transactions carried out by any entity, which earns and spends money, during a particular period, which may be a month, quarter or complete year. Regulating bodies like SEBI and Income Tax Department m andate that accounts shall be prepared in accordance with rules that apply on all throughout the country, cutting across states and districts.
A shift from the present format to January-December one is backed by many rationales, the primary among which is the agriculture sector of India and our dependence on farming, for more than half the population works in this crucial sector and most of the farming l and still relies on monsoonal rainfall (June-September) for irrigation.
Hence the logic that once we have actual figures of total rainfall and the amount of harvest, we will be better placed in deciding the future course of action, which includes preparation of union budget and determining on spending from government exchequer in the following year.
Many proponents of this impending change have a patriotic fervor in the backdrop that April-May period is a British-era legacy and it shall be ab andoned as a representative of our independence from the colonial hold. Even if we reject this chauvinism, the fact that most advanced and advancing economies world over, along with multilateral agencies like the UN and World Bank, follow the January-December cycle is enough to assure that the shift being suggested by the government and think-tanks is progressive.
But let’s also look at the real world scenario and assess if we are actually prepared to implement this change. The Goods and Services Tax implementation is already looming over Indian enterprises and foreign entities having offices in India. They have been approaching professionals at an unprecedented pace so as to avoid any notices and penalties from government departments. So isn’t the idea of asking them to simultaneously prepare for a change in FY half-baked or even ill-thought?
Only accounting professionals can assist corporates in adopting GST and FY change in their record-keeping, and it is an open fact that the number of such professionals is trivial as compared to the contours of our economy.
Secondly, the rationale of agriculture and monsoonal rain doesn’t seem impeccable. Bringing as much agricultural l and as possible under irrigation and urgent and well-planned development of irrigation infrastructure should be the foremost plan to fight the menace of droughts that have plagued our farmers and economy alike.
Moreover, there have not been any complaints whatsoever from any foreign entity, government or multilateral agency depicting that the mismatch of our FY with that of theirs is causing any hindrances in the transfer of funds or running of operations or preparation of st andalone or consolidated financial statements. Why then make this a reason, or for that matter treat April-March as a British ‘curse’ on us?
The bottom line is that India should align its FY with the rest of the world; however, any haste must be avoided for the safekeeping of the present state of the economy that is already struggling with record-low credit growth and dismal job creation. The best idea is to wait and watch how the shift toward the new GST regime works out, take lessons and then go for a move to change the FY to the January-December cycle.
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