Who would have thought that something connected to the Roman empire would indirectly influence India’s budget for more than 150 years?
Moving away from the practice borrowed from the British conventions, which, in turn were influenced by the Romans, the Indian government is planning to advance the date of the presentation of the Union Budget from the last working day of February to the end of January.
This is one of the several steps that it is contemplating to overhaul the Budget-making exercise. By pushing back the date on which the Budget is presented in Parliament, the government hopes to have the document cleared well before the financial year begins on April 1.
The practice of presenting the budget on the last working day of February evolved during the British rule in India. The country's first budget was presented on April 7, 1860, by James Wilson, the finance member of the council of the viceroy of India.
At the time, India’s financial year commenced on May 1 and ended on April 30. In 1867, it moved to the current system (April 1-March 31) to align its fiscal year with that of Britain. Correspondingly, it started announcing the Budget shortly before the financial year began.
While the date on which the financial document is put before Parliament is officially to be decided by the president, India has since Independence followed the practice of presenting it on the last working day of February (barring independent India’s first budget, announced by RK Shanmukham Chetty, the then Finance Minister, on November 26, 1947). This was done to coordinate it with the start of the financial year.
Till less than two decades ago, the time at which the budget was presented was also influenced by the British system. Till 2000, it was presented at 5 pm, a practice that came about during British rule, as the budget would be presented in Britain’s assembly in the afternoon, by when it would be evening in India. It’s only in 2001 that the Indian government adopted the current system of presenting the budget speech at 11 am.
Economists say that India’s budget date is derived from the British practice, which in turn was derived from the Julian calendar (introduced by Roman ruler Julius Caesar) that Britain followed till 1752. While January 1 was considered the start of the year even in the Julian calendar, different countries tweaked this based on their own requirements, or dates of significance. So, from 1155 to 1751, England’s year would change on March 25 (so March 24 would fall under the preceding year), which was also when its budget was presented.
In 1752, however, Britain adopted the Gregorian calendar after which the legal year for companies and business started from January 1, but the budget continued to be presented on March 25.
Radhika Pandey, an economist from the National Institute of Public Finance and Policy, said the budget speech was delayed further so that people would not have to do budgetary work during the Christmas holidays.
“While the financial year started on January 1 [after 1752], they continued the practise of starting the budgetary year on March 25,” Pandey said. “They later shifted this by 11 days, to April 5.”
Save the date
In India, the Budget presentation is followed by a two-stage Parliamentary approval process, which goes on till May. As a result, budgetary proposals are only implemented after that month and for any expenditure in the interim (since the start of the financial year on April 1) the government needs to hold a vote on account to meet its expenses till the budgetary allocations are cleared.
By advancing the Budget presentation date, the government hopes to get the financial blueprint approved well before the start of the financial year, doing away with the need to hold a vote on account.
However, it would still need to be held in cases where the Budget is not approved in time or in Parliamentary elections years, when two Budgets presented – one before and one after the polls.
While many policymakers have heralded the proposal to advance the Budget date as a bold move that could make fiscal management easier, some economists feel that it could present new challenges.
Pandey said that GDP estimates, typically announced before the Budget presentation, will also have to be pushed back, which could impact their reliability. “We have seen instances of glaring differences in the advanced estimates of GDP released prior to the budget and the revised estimates released in May-June,” she said. “Advancing these estimates further would make their reliability questionable.”
Economist Venkatesh Athreya said the move is unlikely to have any impact on the economy, but will increase trouble in taxation, as tax estimates are integral to budget-making. “The payment of taxes is still based on the April-March financial year,” he said. “I am not sure what the rationale is behind such a move. If the government does this, they will have to correspondingly adjust the reference period for taxation.”
The government is reportedly looking at altering its financial year and has set up a committee to look into alternative dates.
The Centre is also looking at doing away with the practice of announcing a separate railway budget – another colonial legacy that experts say we do not need anymore. These changes could be implemented by the time the Budget for 2017-'18 is announced.