The case for a second budget and switch to a new fiscal year

Livemint     17th June 2020     Save    
QEP Pocket Notes

Context: the pandemic induced social distancing requires people to stay away from one another that retards economic activity, also digitization impacting jobs in the short term. 

  • These conditions make an appealing case for a second budget or a completely new calendar.

India’s vulnerability to stimulus measure: India is vulnerable to global trends in risk aversion, capital flows,  commodity prices, and trade winds vis-à-vis other strong economies of the world (US, EU, CHINA, JAPAN).

Options available

  • A second budget for 2020-21: It can provide a roadmap rather than working on a certain assumption.  
  • A change in the fiscal calendar :   
  • April-March is just as good as January-December or October-September. E.g. (the US follows September – October as a fiscal year).
  • The impact on budgetary revenues or spends due to the interplay between the contradictory goals of containing COVID and boosting economic activity will only be available by the 3rd quarter (October-December)
  • Earlier Recommendation: A panel led by former chief economic adviser Shankar Acharya – suggested that a shift to January-December would be optimum. 

Benefits of a shift to a January-December fiscal year: 

  • A separate account for 2020: allow segregation of the 2020 calendar year’s fiscal performance from the relatively regular years of the future. 
  • Integrate better knowledge of our agricultural performance.
  • Multiplier effect on demand: The traditional start of the busy season in October-March will coincide with the new budget dates, so any post-COVID stimulus plan will have a multiplier effect. 
  • Time for setting priorities: The government will have enough time to prepare a full budget by October after the polls. 
  • Easy Changeover: Only require a cosmetic change in the quarterly report for the corporate world. 

Conclusion: A new financial plan that accounts for the corona crisis may bring a lease of life to the economy. 

QEP Pocket Notes