Three states bury plan to change financial year cycle

PM Modi suggested to the CMs about shifting to the January-December financial year cycle

The much-talked-about idea of changing the financial year cycle has been quietly dropped by the Centre, even as individual states that have waited long for a clear signal from Delhi on the issue have decided to continue with the existing system.

Madhya Pradesh, which was the first state to announce in May — in response to Prime Minister Narendra Modi’s call — that it would switch to the January-December cycle from next financial year, has dropped the plan for now. 

“Our financial year would continue from April 1 to March 31, and for the moment there is no plan to change to the calendar year,” Madhya Pradesh Finance Minister Jayant Malaiya told reporters in Bhopal on Tuesday.

Telangana and Andhra Pradesh were the first non-BJP states to have responded positively to the Prime Minister’s advice about aligning the financial year with the calendar year.

As early as in June, Andhra Pradesh Chief Minister N Chandrababu Naidu and Telangana Chief Minister K Chandrasekhara Rao instructed senior officials of respective finance departments to take steps required to sync the new financial year with calendar year 2018. As the mandate was to follow whatever the Centre decides to do with regard to the financial year cycle, the officials of the two states had communicated the same to the finance ministry officials in Delhi and stayed in constant touch with them for a signal to start the budget preparations accordingly. 

To adopt the January-December financial year cycle, the government needs to shrink the current financial year to three quarters and present the new annual budget to the state legislative assembly for its passage in December. 

The officials in Telangana wanted to be told about Delhi’s intent on switching to the new format at least by August 2017, as they wanted a two-three-month window for the preparations. While August has passed without any hint on this from Delhi, the state officials subsequently realised that the changing of financial year cycle was not on the agenda.

“Though there was no official communication (from the Union finance ministry), we are made to understand that the present system will continue,” a senior official of the AP government told Business Standard on condition of anonymity. 

While addressing the third NITI Aayog Council meeting held in Delhi in April 2017, Prime Minister Modi suggested to the chief ministers about shifting to the January-December financial year cycle from the April-March format, a practice India inherited from the British. Soon after returning from Delhi, Madhya Pradesh Chief Minister Shivraj Singh Chouhan had announced that his state would adopt the January-December cycle.

For the governments of Telugu-speaking states, which were sided with the Centre on all major policy decisions, switching to a new financial year cycle was more a matter of convenience as they seek to align with whatever format will be followed by the Centre as this involves financial matters such as the Central devolutions.