MP first state to okay Jan-Dec financial year

Madhya Pradesh on Tuesday became the first Indian state to break away from the 150year old British tradition of an April-March financial year by switching to a January-December period. The state cabinet approved the switch on Tuesday.

The change will kick in from January 2018. The move comes after Prime Minister Narendra Modi directed all states to share their views on the Centre shifting to a new fiscal.

But economists such as former chief statistician Pronab Sen said just one state changing the fiscal year would lead to confusion. “Before the central government changes its financial year, a state doing it would mean that the state budget would be pure fiction. The state will have no idea about the resource flow and transfers from the Centre,” said Sen.

There is, however, no Constitutional need for states to shift to a new period for a financial year before the Centre does so.

A high-level committee led by Shankar Acharya had submitted its report to the finance ministry in December 2016, also reportedly pitched for aligning the financial year with the calendar year. The committee set up in July last year was mandated with the task of studying the merits of NITI Aayog’s suggestion to move to a January-December financial year. The committee has extended its support to the move, saying the change will align India to its monsoon and agricultural harvests.

Subsequently, a parliamentary panel also endorsed the shift in the financial year followed by India. In a reply to a question in the Lok Sabha, finance minister Arun Jaitley had said before endorsing the view of the Acharya committee, consultation with states and local bodies was necessary.

Economists are divided on the committee’s recommendations.

Agriculture economist Ashok Gulati said: “In case of a drought, which happens between June to September, a change in the accounting period from January to December will help in better budgeting. If the budget is presented in November, then early allocations will help the agro economy and farmers.”

Others like Pronab Sen remain sceptical. “I don’t see the need to change the period. What needs to be done is timely passage of dudget, so that the construction period is not hampered,” he said.