“The Indian budget is a gamble on the monsoon” is a clichéd statement that has been made repeatedly for more than a hundred years.
The gamble comes into the game because of four factors:
(1) the Indian fiscal year begins on 1 April and ends on 31 March of the next year,
(2) the southwest monsoon arrives over the country by 1 June and withdraws by 15 October on an average,
(3) the budget for the fiscal year has to be prepared by February end, and
(4) the prediction of an all-India drought can at best be made in April.
The quantum and distribution of the southwest monsoon rains over India during June to September largely determines the agricultural production during the kharif season. Even in the rabi season the crop production is dependent on the amount of moisture left over in the soil after the cessation of monsoon rains. In a good monsoon year, crops give bountiful yields, farmers’ incomes soar, their purchasing power rises, and industry responds. In a drought year, crops wilt, animals perish, the population has to be fed out of buffer stocks, farmers have to be bailed out, and industry suffers. Whatever one may talk about monsoon-proofing the Indian economy, that the “Indian budget is a gamble on the monsoon” says it all.
(Who said it first? Click here to find out from my earlier post.)
I am happy to learn that after all these years, there is now a rethinking on the matter of the Indian fiscal year. According to a news report dated 7 July 2016 in the Indian Express, the Government of India has constituted a committee to examine the desirability and feasibility of having a new fiscal year for the country. It is headed by Shankar Acharya, former Chief Economic Adviser, and has three other members, K. M. Chandrasekhar, former Cabinet Secretary, P. V. Rajaraman, former Tamil Nadu Finance Secretary, and Rajiv Kumar, Senior Fellow, Centre for Policy Research, New Delhi. The committee will look into the impact of having a new fiscal year in relation to the effect of different agricultural crop periods, taxation systems and procedures and impact on businesses, and is expected to submit its report by 31 December 2016.
I think that for India the biggest economic reform would be to have a budget that builds upon the actual performance of the previous monsoon and plans for the next year, thus removing the uncertainty factor of the monsoon. Perhaps, the fiscal year could happily begin on the new year’s day of the year of the Lord!