The BJP-led central government seems to be eager to reimagine everything. First, they scrapped the rail budget and made it part of the main budget. Then, they convinced all states to accept the GST, radically changing the tax regime in the country. And now, they want to shift financial reporting by Indian corporates to the calendar year from the April 1 to March 31 cycle, putting an end to a system that has been in place for well over a century.
The current way of doing things is a relic of an age-old accounting system that was instituted in 1867 by the British. This is not the first time that a move towards calendar year reporting–largely the norm in international business–has been proposed; a similar proposal was axed in 1984 because of fears associated with migration to a new system.
Prime Minister Narendra Modi, who chaired a meeting of the NITI Aayog, said that budgets should be prepared immediately after the receipt of agricultural incomes. The premise is that since the kharif crop is harvested in December-January, this income should be reflected in the first quarter earnings of a new financial year beginning January 1 instead of being reported as earnings in the next financial year, which begins from 1 April, the NITI Aayog said in a release.
However, the problem is that state governments have to align with this vision. The PM praised Indian federalism for supporting the rollout of the GST. Now, a push for this shift to a new reporting structure will rely on the support of state governments just as much.
Earlier this year, the budget presentation date was advanced by almost an entire month, from the last day of February to 1 February. Modi had also set up a committee to examine the possibility of changing the financial year.
Now, once this shift is undertaken, India's financial reporting system will be in tune with global reporting structures. A majority of the world follows the calendar year as the fiscal year. Though all economic entities would have to undergo the pain that such a change would entail, the country as a whole would benefit by getting aligned to the global business.
Considering the fact that the barometer Sensex closed the day nearly 300 points higher, it would appear that the stock markets reacted positively, if at all they reacted, to the news. While the businesses largely agree with the need for such a change, perhaps the greatest difficulty will be in getting the state bureaucracies to ready themselves for a calendar year structure.
It is here that the Modi government will again face the biggest challenge. That said, the PM is absolutely right that we have to do away with the habits created by our former imperial masters.