Prime Minister Narendra Modi's request to states for reactions to a proposal for a change in the financial year to January-December from the current April-March indicates the government's seriousness in pursuing what will be a major governance change.
Senior officials have told Business Standard that the Centre is seriously considering the shift. The process of studying the feasibility and drawbacks have picked up pace after the end of the latest session of Parliament, it is learnt.
At the Niti Aayog governing council's meeting on Sunday, Modi told state chief ministers that there had been suggestions in this regard.
The policy watchers and economists say such a decision needs to be a well-planned one, after discussion with all stakeholders.
"Feasibility is not an issue with regard to either an April-March year or a January-December year. Both have positives and drawbacks. What is important is the information and data the government goes in with while preparing its budget," said Pronab Sen, former principal advisor to the erstwhile Planning Commission and former chief statistician to the government.
Adding: "You can change the financial year, you can advance your economic growth forecasts and other data. What you can't change is the weather, the monsoon. India is unlike any other country in the world in that 70 per cent of its rainfall occurs in three months of the year. So, if the reason for changing to January-December is (only) that most other nations follow the calendar year, that is not good enough."
According to the United States' Central Intelligence Agency world factbook, at least 150 nations, principalities or nation-states follow January-December as their financial year. Another 33, including India, follow April to March.
Madan Sabnavis, chief economist with CARE Ratings, said such a shift would lead to short-term inconvenience in the private sector. "There will be a one-time additional cost for companies to switch. (New) Indian accounting standards, towards which we are transitioning, might have to be changed," he said.
There are options for policy makers. There could be a shift at one go for central and state governments and the private sector. Or, a gradual but time-bound shift. Or changing only for the central and state governments.
Officials say any move will be time-consuming and it could take more than a year to prepare for the switch.
Both Sen and Sabnavis said a partial switch, for only the government and not corporate groups, would be detrimental. "If a switch happens, it has to for all. Otherwise, there will be compliance issues," Sabnavis said.
A panel headed by former chief economic advisor Shankar Acharya had been entrusted with the task of recommending whether such a switch was feasible. Its report came but wasn't made public. Finance Minister Arun Jaitley had said in Parliament in the latest session that the government was studying it.