Public Finance

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Public Finance pertains to that section of the Finance Ministry that concerns itself with the objective of allocating resources, while staying within the constraints of the budget.

Public Finance in India also comes under the purview of a branch of economics which determines and assesses the policies of the Indian government stipulated in the annual finance budget. Public finance identifies that types and consequences of tax measures and expenditure on citizens, institutions, and the entire economy. Public finance is also concerned with improving and upgrading economic procedures that support governmental policies.

Indian public finance is usually praised and welcomed by the business community since the budget tends to be market friendly. However, in recent years, the government's infrastructural reforms have been criticized. According to financial analysts, the government spends the majority of its revenue on current expenditure and loses focus on public finance/investment. For example, in 2001-02, as per CIA estimates, the Indian government accumulated revenues of about $48 billion and incurred expenditures of around $78 billion. On the whole, the government experienced a deficit of about $30 billion and external debt amounted to $100.6 billion.

Public policy is inextricably linked with public finance. Public policy refers to the decisions and measures undertaken by the government, in congruence with citizens and legal bodies. Public policy and public finance are related since it's with the help of public policy that issues pertaining to public finance are sorted out.

Policies under Public Finance:
  • Fiscal policy: This refers to the overall policy framework of the government after factors such as government earning, government spending, and government borrowings have been taken into consideration.
  • Monetary policy: This refers to India's central government policy regarding the amount of money, exchange and interest rates prevailing in the economy. Monetary policy plays a significant role in controlling aggregate demand and inflation.
By means of these policies, the government aims at:
  • Bringing about equity in distribution of wealth and income across the various strata of society, so that the gap between and rich and the poor is gradually bridged.

  • Promoting and sustaining economic growth by increasing rate of savings and investment and enhancing the rate of public expenditure.

  • Undertaking the optimum allocation of resources with the help of financial instruments such as taxes and subsidies.

  • Stabilizing the economy by avoiding drastic fluctuations between economic boom and recession.

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