What  is Happy Financial Year

What is Financial Year?

Before proceeding further as to discuss what a happy financial or fiscal year is, it is imperative to define what a financial year is? A financial year is a period of twelve months, used by government, business, and other organizations in order to calculate their budgets, profits, and losses. Financial year is often used in business to compare with the calendar year.[1] The financial year varies from country to country. In India the Financial or Fiscal Year commences from 1st April to 31st March of the impending year.

What  is Happy Financial Year

There is no straight jacket formula as to what constitutes a Happy Financial Year, though there are various indicators for a happy financial year as per various prospective which are stated below-

1. Government

Gross Domestic Product Growth is used as a tool to assess the financial condition of a country. It is an indicator of economic development in a country and enables to assess whether an economy is experiencing growth or recession which enables the stakeholders to make investment related decisions accordingly. If we take into account the GDP growth of India in the last three quarters, it turns out to the average of 5.1% which is underwhelming and hence reforms are required to revive economic growth to term the present financial year as happy financial year and to achieve the five trillion economy target.

Debt to Gross Domestic Product Ratio in a financial year is of paramount importance for a country and a just and righteous indicator as to where an economy is heading. Gross domestic product refers to the total market value of goods or services produced within a economy in a given time frame whereas debt refers to an obligation to pay. The debt to gross domestic product ratio should ideally must not exceed 40 percent for developing nations whereas it can exceed beyond 40 percent to less than 60 percent for developed nations as per reports of the Fiscal Affairs Development of the IMF[2] therefore adherence to such figures is an indicator of Happy Financial Year. India has debt to gross domestic product ratio of around 69% in 2019-2020 fiscal year, which is inordinately high and needs to be brought down to achieve the goal of happy financial year.

Foreign Reserves denotes the amounts of money in foreign currencies that a country has at a particular time.[3] As per the application of Greenspan-Guidotti rule, the developing nations like India should endeavour to maintain reserves that can meet external debts due till consecutive year. High foreign reserves enable the country to stabilize their currencies and to meet external obligations without impacting its internal market; therefore higher the foreign reserves of a economy in the financial year, better the prospects of the economy. Currently as per latest data, India has a foreign exchange reserve of around USD 481 billion which is sufficient to absorb financial shock and to keep the currency stabilized hence the present fiscal year can be termed as happy financial year at least in terms of foreign reserves.

Gold reserves are an amount of gold kept by a country’s bank in order to support the supply of money.[4] It plays the role of reserve currency in international transactions and to raise money. Higher gold reserves act as a tool to foster credibility of the nation in the issuance of currency and bonds. As per latest data released by World Gold Council’s data India’s has holding of 618.2 tonnes of gold, which can be classified as plenty to meet financial shocks and hence present financial year can be termed as Happy financial Year in terms of Gold Reserves.

Inflation rate can be defined as a rise in overall consumer price index over a period of time. In a healthy economy the inflation rate should be between 5%-7%. India’s inflation rate stands at 6.58% as of February, 2020 which is well within the range of happy financial year.

Fiscal policy is a government policy by which it regulates its spending levels and tax revenue to keep the economy running smoothly. It plays a critical role in India in economic development by eradicating income inequalities and in providing financial incentives. It consist of; public debt, taxation, investment policy and public expenditure. The latest fiscal expenditure as of Jan 2020 stands at all time high at USD 22683.29 Billion as of January, 2020 hence it can be said from the prospective of Government that the present fiscal year has been underwhelming.

Monetary Policy is a central bank policy by which it regulates interest rate and money supply in order to monitor inflation and price stability. It constitutes; Bank Rate, Repo Rate, Reverse Repo Rate, Marginal Standing Facility, Cash Reserve Ratio and Statutory Liquidity Ratio. As per the latest data available the current rate are as follows; Repo Rate: 4.40%, Reverse Repo Rate: 4.00%, Marginal Standing Facility Rate: 5:40%, Bank Rate: 5.40%, Statutory Liquidity Ratio: 18.25%, Cash Reserve Ratio: 4%[5]. The current Repo rate is at all time low at 4.40% owing to the Covid-19 impact, to revive economy from the current slowdown. In the view of the same it can be said that though economy is going through a slowdown but steps are being taken to bring back the economy on track.

2. Corporations

Statutory Obligation refers to a responsibility of corporations to fulfil their duty mandated by the law. The two major component of statutory obligation constitutes corporate social responsibility and income tax. CSR refers to the societal objectives which a corporation needs to undertake mandated by law whereas income tax refers to a tax levied against income. CSR is dealt under section 135 of The Companies Act, 2013 which mandates that any corporation satisfying prescribed conditions under the section to undertake societal goals by investing two percent of its average net profit of its three preceding years.  In the view of the current Covid-19 impact, corporation are being encouraged to invest towards the cause to combat the epidemic, further the finance ministry has announced various reliefs with regard to income tax by extending the deadline of filling income tax from 31st March to 30th June and in case of late filling the rate of interest has been brought down from 12% to 9% to pacify the economic slowdown.

Fiscal Policy- Since the latest fiscal expenditure as of Jan 2020 stands at all time high at USD 22683.29 Billion as of January, 2020 hence it can be said from the prospective of corporation that financial incentives has been attributed to corporations for the present financial year, in addition to it government has announced various relief package for corporation under various sectors due to Covid-19 and hence it can be said it’s  not been a happy financial year owing to rising unemployment for corporations but reforms are in place to combat the slowdown.

Monetary Policy- In order to pacify the present slowdown in economy, the central bank has taken measures like lowering bank rate, reverse repo rate to name a few, hence it can be said that the economy is not going through it’s best phases but reforms are in place to fight the deceleration caused by Covid-19 epidemic.

3. Citizens

Subsidies can be termed as benefits extended by a government to an entity for the welfare of the society. This fiscal year, government has incurred a expenditure of around Rs. 3,00,000 Crores in the current financial year which is up by 13.32% as compared to previous financial year in programmes like NGERA, midday meal programmes, healthcare, women empowerment and farm loan waivers to aid marginalized and poor sections of the society thus from the prospective of citizens this can be termed as happy financial year.

Statutory Obligations for a citizen mostly consist of income tax. Slabs are as follows-Income upto 3 Lakhs – Nil, Income 3-5 Lakhs -5%,Income 5-10 Lakhs- 20%, Above 10 Lakhs-30%, which has remained the same from the last financial year however In the view of the current slowdown, the finance ministry has announced various reliefs with regard to income tax by extending the deadline from 31st March to 30th June and in case of late filling the rate of interest has been brought down from 12% to 9% to pacify the economic slowdown.

Monitory and fiscal policies are bring regulated from time to time to counter the present economic slowdown from which the economy is going through. Government’s fiscal expenditure is at a all time high. The central bank has taken measures like lowering bank rate, reverse repo rate to name a few, hence it can be said that the economy is not going through it’s best phases in view of the growing unemployment but reforms are in place to fight the deceleration caused by Covid-19 epidemic from the prospective of citizens.

[1] Collins  English Dictionary

[2] IMF (2010). “From Stimulus to Consolidation: Revenue and Expenditure Policies in Advanced and Emerging Economies”, April 30  (pp 7-8)

[3] Cambridge English Dictionary

[4]  Oxford English Dictionary

[5] Source: RBI

This article is authored by Devashish Tiwari, student of BBA LLB at JIMS, School Of Law.

Also Read – Benefits of Filing ITR Even When Income is Below the Taxable Limit

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