Page 6
Semester 2: Public Financial Administration
Introduction to Public Financial Administration: Meaning, Scope, Significance; Budgeting Principles and Systems: PPBS, Performance Budgeting, Zero Base Budgeting, Cost Benefit Analysis, NPM Model
Public Financial Administration
Introduction to Public Financial Administration
Public Financial Administration refers to the management of public funds, including budgeting, expenditure, and financial reporting. It is essential for the effective functioning of government and public sector organizations.
Meaning of Public Financial Administration
The term encompasses all activities related to the collection, allocation, and utilization of public financial resources to achieve government objectives.
Scope of Public Financial Administration
The scope includes planning, implementing, evaluating, and auditing financial activities within the public sector. It deals with fiscal policy, financial management, and the relationship between government and public finance.
Significance of Public Financial Administration
It ensures accountability and transparency in the use of public resources, facilitates efficient service delivery, and supports economic development.
Budgeting Principles
Budgeting principles are guidelines that govern the preparation and execution of budgets in public administration, focusing on transparency, accountability, and efficiency.
Budgeting Systems
Various budgeting systems are utilized, including:
PPBS (Planning, Programming, Budgeting System)
A method that integrates planning and budgeting to allocate resources based on program performance.
Performance Budgeting
Links budgeting with measurable results and performances of government activities, aiming to improve operational efficiency.
Zero Base Budgeting
A budgeting approach that starts from a 'zero base' and requires all expenses to be justified for each new period rather than being based on prior budgets.
Cost Benefit Analysis
A systematic approach to estimating the strengths and weaknesses of alternatives; it helps determine options that provide the best approach to achieving benefits.
NPM Model (New Public Management)
A management theory in the public sector that emphasizes efficiency, service quality, and customer satisfaction, advocating performance-based rewards and competition.
Budgetary Process: Constitutional Provisions, Indian Process, International (UK, USA, France, Switzerland, Germany) Comparisons
Budgetary Process: Constitutional Provisions, Indian Process, International Comparisons
Constitutional Provisions in India
The Constitution of India provides the framework for the budgetary process. Article 112 mandates the President to lay the annual budget before the Parliament. The budget must include estimates of revenue and expenditure. Additionally, Article 114 requires the Parliament's approval for expenditure, indicating that no money can be withdrawn from the Consolidated Fund of India without authorization.
Indian Budgetary Process
The Indian budgetary process involves several stages: preparation, presentation, approvals, execution, and auditing. The Ministry of Finance prepares the budget with inputs from various ministries. It is presented every year on February 1. Post presentation, it goes through discussions in the Lok Sabha and Rajya Sabha and is passed as the Appropriation Bill.
International Budgetary Practices - UK
In the UK, the budget process is centered around the Chancellor of the Exchequer, who presents the budget to the House of Commons. The budget follows a similar trajectory as in India but includes further stages of committee evaluations. The UK's financial year runs from April to March.
International Budgetary Practices - USA
The U.S. budgetary process is initiated by the President's budget proposal submitted to Congress. Congress then reviews, amends, and ultimately approves the budget through appropriation bills. The U.S. operates on a fiscal year that starts on October 1.
International Budgetary Practices - France
In France, the budgetary process is outlined in the French Constitution, which mandates the budget to be presented by the Prime Minister. The National Assembly holds the authority to approve the budget, which is key to the functioning of the government.
International Budgetary Practices - Switzerland
Switzerland's budget process involves a decentralized approach where each canton prepares its budget. The federal budget is proposed by the Federal Council and must be approved by the Federal Assembly. The Swiss fiscal year coincides with the calendar year.
International Budgetary Practices - Germany
In Germany, the budget process is governed by the Basic Law. The Federal Ministry of Finance prepares the budget which is formalized by the Federal Government and submitted to the Bundestag for approval. Germany practices a balanced budget philosophy as enshrined in its fiscal policies.
Comparative Analysis
Comparing the budgetary processes highlights variations in constitutional frameworks, fiscal years, and approval mechanisms. While India mirrors some aspects of the UK and USA processes, its constitutional mandates shape a distinct procedure. Understanding these differences aids in grasping how public financial administration functions across different governance systems.
Accounting and Auditing: Systems in India and other Countries (UK, USA, Europe)
Accounting and Auditing: Systems in India and other Countries
Overview of Accounting Systems
Accounting systems are essential for recording, classifying and summarizing financial transactions. Different countries like India, UK, USA and European nations have varying accounting standards influenced by their legal, economic and cultural environments.
Indian Accounting System
In India, the accounting system largely follows the Indian Accounting Standards (Ind AS), which are converged with International Financial Reporting Standards (IFRS). This has enhanced the comparability of financial statements globally.
Accounting in the UK
The UK follows Generally Accepted Accounting Principles (UK GAAP) and IFRS for publicly listed companies. The Financial Reporting Council (FRC) oversees accounting regulation within the UK.
Accounting in the USA
The USA follows Generally Accepted Accounting Principles (GAAP) established by the Financial Accounting Standards Board (FASB). The Sarbanes-Oxley Act has also introduced stricter compliance and governance measures.
Accounting in Europe
European countries utilize IFRS as a standard for financial reporting. Each country has its adaptations, but the goal remains uniformity and transparency in financial statements.
Auditing Standards
Auditing standards vary significantly across countries. In India, the auditing process is regulated by the Institute of Chartered Accountants of India (ICAI) while in the USA, the Public Company Accounting Oversight Board (PCAOB) oversees auditing standards.
Role of Technology in Accounting and Auditing
Emerging technologies such as AI, blockchain and cloud computing are transforming accounting and auditing practices across countries. Automation improves efficiency and accuracy in financial reporting.
Challenges in Accounting and Auditing
Factors such as regulatory changes, technological disruptions and skills shortages pose challenges to effective accounting and auditing practices globally.
Conclusion
Understanding the diverse accounting and auditing systems across India, UK, USA and Europe is vital for professionals engaged in global financial operations. Harmonization of standards can drive better economic integration.
Control over Public Expenditures: CAG, Parliamentary Committees (PAC, EC, COPU), Public Debt, Monetary Policy, RBI
Control over Public Expenditures
CAG (Comptroller and Auditor General)
The CAG is responsible for auditing the government's financial statements and ensuring transparency in the expenditure. It evaluates financial management and adherence to policies, providing reports to the Parliament that highlight discrepancies and areas of concern.
Parliamentary Committees
Parliamentary committees play a crucial role in overseeing public expenditures. Key committees include: PAC (Public Accounts Committee), which examines the accounts showing the appropriation of funds; EC (Estimates Committee), which recommends expenditure levels for public services; and COPU (Committee on Public Undertakings), which inspects the performance of public sector undertakings.
Public Debt
Public debt management is vital for government financial stability. It includes borrowing strategies and repayment plans. Effective management prevents excessive borrowing and ensures that funds are used efficiently for developmental projects.
Monetary Policy
Monetary policy regulates money supply and interest rates. The objective is to achieve economic stability, control inflation, and promote growth. The government and the RBI coordinate on fiscal and monetary policies to manage public expenditures effectively.
RBI (Reserve Bank of India)
RBI plays a critical role in public financial administration through its monetary policy, regulation of banks, and management of foreign exchange reserves. It ensures liquidity in the economy and monitors financial stability.
Fiscal Administration in India: Tax and Non-tax Resources, Direct and Indirect Taxes, GST, GST Council, Grants-in-Aid, Finance Commission, NITI Aayog
Fiscal Administration in India
Tax Resources
Tax resources form a significant part of the fiscal administration in India, encompassing both direct and indirect taxes. Direct taxes are levied directly on income or profits, such as income tax and corporate tax, while indirect taxes are imposed on goods and services, such as sales tax and value-added tax (VAT).
Non-Tax Resources
Non-tax resources include revenue generated from sources other than taxes, such as fees, fines, and royalties from natural resources. These resources are crucial for government financing and budgetary support.
Direct Taxes
Direct taxes consist mainly of income tax, corporate tax, and wealth tax. These taxes are progressive in nature, meaning higher income brackets pay a higher tax rate, contributing to income redistribution.
Indirect Taxes
Indirect taxes include GST, excise duty, customs duty, and service tax. They are typically regressive, impacting consumers based on consumption rather than income.
Goods and Services Tax (GST)
GST is a comprehensive indirect tax that subsumes many previous taxes, aiming to eliminate the cascading effect of multiple taxes. It is a destination-based tax, meaning the tax revenue is assigned to the state where the goods or services are consumed.
GST Council
The GST Council is a constitutional body comprising the Union Finance Minister and state finance ministers. It is responsible for overseeing the implementation of the GST and for recommending tax rates and policy changes.
Grants-in-Aid
Grants-in-Aid are funds provided by the central government to states for specific purposes, aimed at improving capacity and welfare, and to bridge the fiscal gap in state budgets.
Finance Commission
The Finance Commission is a constitutional body responsible for recommending the distribution of tax revenues between the central and state governments and for addressing issues related to state finances.
NITI Aayog
NITI Aayog is the policy think tank of the Government of India, replacing the Planning Commission. It focuses on cooperative federalism and aims to enhance economic development through strategic planning and resource allocation.
