Decoding India's Fiscal Calendar: Why Financial Year Start from 1st April?

India, a country of diverse cultures and traditions, has many things that set it apart from the rest of the world. One of these unique features is its fiscal calendar, which runs from April to March. But have you ever wondered why India follows this financial year cycle? Let's explore the fascinating history behind India's fiscal calendar.

The Julian Calendar and the May-April Fiscal Year

India's fiscal calendar dates back to colonial times, when the British East India Company was ruling the country. The Company's financial year ran from May to April, which was more convenient for the Company's accounting purposes. However, after India gained independence in 1947, the new government had to decide on a fiscal year that would suit the country's needs.

Considering Options: Calendar vs Financial Year

The Indian government considered different options, including the calendar year (January to December) and the financial year used by the British East India Company (May to April). However, after much deliberation, the government decided to adopt a fiscal year that would coincide with the agricultural cycle of the country.

The Agricultural Cycle and the April-March Fiscal Year: Why financial year starts from 1st April

India's economy is predominantly based on agriculture, and the majority of the country's population is involved in farming. The months of April to March correspond to the crop cycle of India. The sowing of crops begins in April, and the harvest takes place between October and March. Therefore, the fiscal year from April to March allows the government to align its budget with the country's agricultural cycle.

The Julian Calendar and the Missing Days

However, the story of India's fiscal calendar is more complex than just the agricultural cycle. In 1752, the British East India Company introduced the Gregorian calendar, which replaced the Julian calendar that had been in use until then.

The Julian calendar had an error in its leap year calculation, which caused it to slowly drift out of sync with the solar year. By the time the Gregorian calendar was introduced, there was a difference of 11 days between the Julian calendar and the actual solar year.

To align the calendar with the solar year, the Gregorian calendar dropped 11 days and changed the leap year rule to a more accurate one. When the British East India Company introduced the Gregorian calendar in India, they also dropped 11 days to align with the new calendar. However, the Indian fiscal year remained unchanged, running from May to April.

This meant that the financial year that ended in March 1752 was only 21 months long, as it included the missing 11 days. The next financial year, which started in April 1752, was a normal 12-month year.

Consistency and Comparability of Data

Despite this hiccup, the adoption of April to March fiscal year allowed the government to maintain consistency and comparability of data over time. With the same financial year cycle being followed every year, it becomes easier to compare the data and track the progress of the economy.

Integral to India's Financial System

India's fiscal year cycle has become an integral part of the country's financial system, and it affects almost every aspect of the economy. From government budgets to corporate financial reporting, the fiscal year plays a crucial role in shaping the economic landscape of the country.

As India continues to evolve and grow, its fiscal calendar will remain a crucial aspect of its financial system. While there may be debates on whether to change the fiscal year to align with the calendar year or to adopt a different cycle altogether, the fact remains that April to March has served India well for over seven decades.

Understanding the history and significance of India's fiscal calendar is important not only for those in the finance industry but for every citizen of the country. By recognizing the role that the fiscal year plays in shaping the economy, we can work together toward a better future for India.