Wednesday, March 31, 2010

Financial year

As this year's financial year comes to a close today, there is a frenzy of activity (especially in government offices) to spend the money that is left over. It is a bane of the Indian system that if the alloted money is not spent by the financial year, then the next year's budget is reduced by this amount and the amount unspent this year is not carried over. Many funding agencies for research also use this policy. This leads to a mad rush to spend the money even if there is no need to buy the material. The private vendors know this well and try to push unwanted things through because one wants to utilize the money. Thus, the funding agencies should seriously consider carry over the funds to the next year if the funds are underutilized this year.

One may wonder why India's financial year closes on March 31 and not Dec 31. The Income-Tax Act was enacted in 1961. The Act came into force from April 1, 1962 and that's why our financial year begins on April 1 every year. Further, as India is an agricultural economy, revenue generally depends on the unpredictable outcome of the harvest in Feb and thus March is a good time to close the accounts.

On a personal note, it also closes out a very busy month for me as all contracts right from library books, journals, toilet cleaning, security to garbage pickup etc etc. have been signed. It is also a time for me to contemplate on what I am doing as I complete twelve years in IISc on Monday. This process of self-exploration may appear a little lame, but this is the foundation of living. When one takes time to evaluate one's own strengths and weaknesses, attitude to life, passion to work etc., one gets a truer sense of what's really good for us. Ultimately, though it has to be something that meets our financial, professional and personal needs, it is more important to be happy with what one has and what one does.


Anonymous said...

I was completely unaware why the financial year started on 1st April. Thanks for the information !

Rajnish said...

In India Income-Tax Act was enacted in April 1, 1961. But how come financial year in many other countries are from April to March. For example in Canada, the other countries are UK, Hongkong, Japan, Newzealand. Regarding the funding issue, it’s pretty much the same condition in Canada as well. You need to spend all your funds before March 31, otherwise it lapses.

I agree whole heartedly with Prof. Madras on the last few lines…


Arun said...

Thanks for the info. I was wondering where you were all these days :-) I remember my dad (govt. empl.) mentioning that the rational behind this seemingly insane practice (of reducing future funding) was to ensure that govt depts spend the money allocated thereby people gaining 'something' out of it.

Arum said...

On another note, I have realized that as I grow older (not that old, just crossing 30!!) and the more I learn about world (people) and how it functions, I cannot help get cynical. Introspection ends up fueling my death spiral into cynicism. Wonder if this is a natural outcome of turning 30?!?

1983ers said...

Actually, the Rabi harvest typically got over in march and by early April the government could recover its taxes from the people. The Kharif crop is dependant on monsoon and hence was not used for this purpose. This is why, succesive governments take April 1. Also the Indian calender (remember prof. Giri you enjoyed a ugadi holiday) begins in March April. Thus the budget session of parliament decided to adopt this rather than the gregarian calender adopted by the western world. Even the britishers had better success in tax recovery when they collected in april!

But that apart- I have a problem with distress purchasing as mentioned in this blog and with government departments giving too much money till march 31.

Look at this in the following way...
budget allocations are made in March and approved by parliament. A department like the MHRD receives Rs. 15000 Crores to be spent in the current fiscal year of which 50% must be spent by September 30 of that year (or in 6 months).

After october 1 only 50% of the allocated money remains in the coffers of MHRD. Thus any plan of action should be initiated by september 1 so that the money can be spent for public good by March 31.

Unfortunately- very few departments are able to achieve this. Any left over money is now decreased from their next year's allocation.

The reason for this is that we are doing deficit financing. the government assumes that the money is there to spend. But recovery by taxation is always lower. so this mone cut actually cuts back the expenditure that was to be but now isn't!

The whole process is a vicious cash cow circle *grin*

I know of bills/ projects being cleared at the stroke of midnight as after that the money is frozen by the finance section. Even then this process runs to a couple of days after the fnancial year is over.

The beauty of this process is that- I have not heard a genuine request for more funds ever be overturned by th finance minister/ prime minister if the allocation is insufficient! however- this is sadly how the civil servants behave with our politicians and now our government institutions are sadly falling prey to all this.

My suggestion is to negotiate a good price by dec-January for all equipment you need with a 120 day validity and place the order when the funds arrive.

Anonymous said...

Prof. Madras,

What are relatively easy DST/other agencies funding options available to young Assistant Professors. What is the average funded amount.
what is the typical timeline for the funding decisions of each proposal to such agencies.


Giri@iisc said...

This issue has already been discussed.