At the NITI Aayog Governing Council’s third meeting on Monday Prime Minister Narendra Modi made two key pitches that could significantly change the political and economic setup. PM Modi proposed shifting of the financial year period from the present April-March to January-December. Another major proposal was of holding elections to the Lok Sabha and state Assemblies simultaneously. The meeting was attended by chief ministers of several states and the PM raised issues like political and economic mismanagement.
PM Modi said: “Because of poor time management, many good initiatives and schemes had failed to deliver the anticipated results,” adding that there is a need to develop robust arrangements that could function amidst diversity. He called for taking the debate into Parliament and state Assemblies;
So what are the pros and cons of the two moves? Here’s a look:
Change in fiscal year
In his opening remarks, Modi said that in a country like India where agricultural income is exceedingly important, budgets should be prepared immediately after the receipt of agricultural incomes for the year. The prime minister said that the government had suggestions for a change in the fiscal period to January-December. Niti Aayog vice chairman Arvind Panagariya later said the prime minister wants that “we should think of January-December financial year as this is appropriate from the point of view of farmers”.
Two years after the British crown took over India’s administration from the East-India Company, it introduced the budget system on April 7, 1860. Subsequently, the financial year cycle for April 1 to March 31 was adopted in 1867 by the then British Raj. The move was an attempt to align India’s financial year cycle with that of Britain. Before 1867, India’s fiscal period was May 1 to April 30. So, the fiscal followed in India since over the last 150 years is only because of tradition for aligning India’s fiscal with its erstwhile colonial master.
Even the rare progressive British commissions agreed that the practice needed a change. A report of the Royal Commission on Indian Finance and Currency – Chamberlain Commission 1914 stated: “The revenues of India, whether shown under railways or customs or directly under the head of land revenue, fluctuate to an extraordinary extent with the success or failure of the agriculture operations of each year, and these again depend pre-dominantly on the south-west monsoon which spreads over the Indian continent and Burma in the months of June to October. Under present arrangements, the Indian budget is presented before the end of March, and the
Finance Minister accordingly has to prepare his estimates in ignorance of the most
important factor on which the results of the year will depend.”
It added: “It is clear in fact that from the financial point of view the present date is almost the most inconvenient possible for the budget, and the suggestion has therefore been made that the date of the beginning of the financial year should be altered from the altered from the 1st April to the 1st November or 1st January.”
There is no global standard for fixing a fiscal. Some countries follow a fiscal that coincides with the calendar year (January 1 to December 31) like China, Brazil, Russia and Germany, France, Sweden, Denmark, Malaysia, UAE, Saudi Arabia etc. Some like Canada and Singapore follow the same cycle as India. While others like Pakistan and Egypt follow a fiscal starting July 1.
The economic benefits would definitely outweigh the administrative difficulties that will arise initially for the implementation.
The government has, already, formed a commission in 2016 to look into the matter and a parliamentary panel has given its nod to the matter. A report on the matter was already published for government’s sensitisation of the matter in 2016 by NITI Aayog written by member Bibek Debroy suggesting a change in the date. A host of statutes and taxation laws will need to be amended for the change to take place and it will be an arduous process but one that would bear results, but with immediate difficulties.
The Parliamentary Standing Committee chaired by M Veerappa Moily had this year in its report criticised the hastening of budget presentation and suggested that the financial year may be shifted to calendar year and the budget date shifted correspondingly.
Another major benefit is that major multinationals follow calender years as their fiscals. In India they have to follow two fiscals which makes business difficult. The change would align India’s economy more with the global business environment. Another important factor is that at present the budget cycle suffers due to lack of sufficient data on crop income, monsoon forecast etc. This rain gamble causes difficulties in formulating the budget. Most importantly, it is about time India moved on from colonial tradition and decided on issues based on merit.
Finally, the one time implementation cost along with major financial reforms like GST rollout and merger of plan and non-plan expenditure may be too big a burden to handle. It will be a costly and cumbersome administrative exercise for both companies as well as the government.
Holding Lok Sabha and Assembly elections simultaneously
Prime Minister Narendra Modi had floated the idea back in January this year. Conducting parliamentary elections, Assembly elections and local body polls at a large scale each year in India is a costly and tiresome exercise which consumes a lot of resources.
Due to elections each year, key leaders holding posts in government are tied up for months in campaigning across the country leaving the functioning of their government to the hands of the bureaucracy. Moral code of conduct also restricts a lot of economic activity and that leads to a financial dent on the economy.
Massive expenses are borne to conduct Lok Sabha elections and then equal, if not more, are spent as combined exercise of Assembly and local body polls. Simultaneous poll exercise would nullify the expenses for multiple elections and at the cost of a single national elections. It also gives four uninterrupted years for the government to work on the issues of the public, taking out one year for campaigning again. A similar kind of election is held in US as well for the Presidential elections and the Congressional elections. Though the state elections are held separately, still it is a step ahead to where we stand.
The only issue is when the government falls in between its five-year term. New elections elect governments to a fresh five-year term and thus will break the simultaneous system. For it to work, a change in legislation will be required.
It has been seen in the past that presidential rule has been imposed on weak grounds in many states. Even when Janta Party won in 1977, president’s rule was imposed in many states. Similarly, at times local bodies come under control, direct or indirect, of the states which dissolve them prematurely. All of these factors lead to a situation of staggered elections. Hence stable polling bodies are a crucial need. There is no mention of a no-confidence motion in the Constitution. It finds mention in Rule 198 of the Rules and Conduct of Business of the Lok Sabha that states 50 or more members of the Lok Sabha can move a no-confidence motion. The rule says, if the motion passes, government has to resign and if neither party is able to form the government, premature polls are conducted.
A law commission report in 1999 had recommended a solution that could be used henceforth. It took a cue from German Constitution. In German parliament, when a no-confidence motion is moved against a chancellor, a confidence motion has to be moved as well. So if both motions pass, then the new chancellor is appointed by the German President.
Taking the system in India, if it is adopted, it could possibly mean that the elections will be held in a period 5-year manner without violating the national mandate of government formed by the consent of elected lawmakers and people’s representatives. It could keep the democratic system from falling prey to political ambitions of leaders willing to sacrifice larger interests of the people.
Appeared in print Edition of April 26-May 02