Maharashtra Board Class 12 Economics Chapter 8 Public Finance in India PDF Download

Public Finance In India

Introduction

Public finance is one of the old branches of economics which highlights the role and functions of the government in an economy. Government is a formal or informal institution created by the people in a specific region to perform various functions such as protection from external attacks, protection of private property of the people, generation of employment, maintaining internal law and order, provision of social needs like education, health, etc.

These functions of the government can be classified as:

1) Obligatory Functions: Protection from external attacks, maintaining internal law and order etc. are obligatory functions of the government.

2) Optional Functions: Provision of education and health services, provision of social security like pensions and other welfare measures etc. are optional functions of the government.

Find out: More examples of obligatory and optional functions of the government.

Meaning And Nature Of Public Finance

To perform the above mentioned functions, adequately and efficiently, any government needs funds which can be received from various sources. The concept of public finance is a combination of two words 'public' and 'finance'. 'Public' is a collective for the individuals living within an administrative territory. In economics, it is used to signify the government which represents the public. 'Finance' simply means income and expenditure. Thus, 'public finance' is nothing but a study of the principles of income and expenditure of the government at central, state and local levels. This study is done under the public finance branch in economics.

Definitions Of Public Finance

Different economists have defined public finance in their own ways. Let us study some of these definitions:

1) According to Hugh Dalton: "Public finance is one of those subjects which are on the borderline between economics and politics. It is concerned with the income and expenditure of public authorities and with the adjustment of one with the other." Since we study the activities of the governments in political science too, public finance also constitutes a part of the study of political science.

2) According to Prof. Findlay Shirras: "Public finance is the study of the principles underlying the spending and raising of funds by public authorities."

Teacher's Note

Public finance means how the government collects money through taxes and spends it on schools, roads, and hospitals. For example, the taxes you pay help build the roads in your village.

Exam Trick

Remember: Public finance = Government's money. Just like your mother manages the family's money, the government manages the country's money through public finance.

Points to Remember

Public finance studies how government earns and spends money.
Obligatory functions are must-do duties like defense and law and order.
Optional functions are extra services like education and health.
Government needs many sources of money to run all its functions.
Public finance is different from private finance because government helps everyone in the country.

Differences Between Public Finance And Private Finance

Teacher's Note

Public finance helps everyone in the country while private finance helps only one person. For example, your school fees are private, but the government school is public finance.

Exam Trick

Remember: Government can print money, you cannot. That is the biggest difference between public and private finance.

Points to Remember

Public finance aims to help society, private finance helps one person.
Government decides its spending first, individuals decide based on income.
Government has more credit power than private people.
Only government can print money through Reserve Bank of India.
Public finance is flexible but private finance is fixed.

Structure Of Public Finance

The components or scope of public finance can be shown as below:

I) Public Expenditure - Government spending on everything.

II) Public Revenue - Government income from taxes and other sources.

A) Tax - Money government collects from people and businesses.

B) Non-Tax - Money from fees, fines, and other sources.

III) Public Debt - Money government borrows from others.

IV) Fiscal Policy - The financial rules the government makes.

V) Financial Administration - How government manages its money.

Teacher's Note

Public finance has five main parts like five subjects in your school. Each part has its own job to do for the country's money management.

Exam Trick

Remember the five parts with fingers: Expenditure, Revenue, Debt, Fiscal Policy, and Financial Administration. Count on your five fingers to remember.

Points to Remember

Public expenditure is all money government spends on people and country.
Public revenue is all money government earns from taxes and fees.
Public debt is money government borrows when it needs more funds.
Fiscal policy controls how government spends and collects money.
Financial administration is the actual management of government's money.

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