Revision: Public Finance in India Eco HSC Commerce (English Medium) 12th Standard Board Exam Maharashtra State Board

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.”

•  According to Prof. Taussig: “The essence of a tax as distinguished from other charges by government is the absence of a direct quid pro quo between the tax payer and the public authority.”
• According to Prof. Seligman: “A tax is a compulsory contribution from the person to the government without reference to special benefits conferred.”

• "Fiscal Policy is the policy concerning the revenue, expenditure and debt of the government for achieving definite objectives." -Prof. Dalton 
• "Fiscal policy involves alterations in government expenditures for goods and services or the level of tax rates. Unlike monetary policy, these measures involve direct government entrance into the market for goods and services (in case of expenditure) and a direct impact on private demand (in the case of taxes)." – Prof. Gardner Ackley
• "We define fiscal policy to include any design to change the price level, composition or timing of government expenditure or to vary the burden, structure or frequency of tax payment." – G.K. Shaw
• Fiscal policy includes those "Changes in government expenditure and taxation designed to influence the pattern and level of activity." – Harvey and Johnson
• Fiscal Policy includes those "Changes in taxes and expenditure which aim at short run goals of full employment, price level and stability." – Otto Eckstein

According to Prof. Johnson, “A state budget is a statement of the states estimated income and expenditure in a commencing period usually one year.”

According to Prof. Dimock, “Balanced estimate of expenditure and receipt for the given period of time.” 

• Public expenditure is government spending by central, state and local bodies for public welfare and development.​
• It includes spending on defence, administration, health, education, roads and social welfare schemes.​
• Revenue expenditure covers day‑to‑day running costs like salaries, pensions and routine services.​
• Capital expenditure creates assets and development, e.g. infrastructure projects and loans.​
• Developmental expenditure is productive and raises employment, output and welfare (health, education, industry, R&D).​
• Non‑developmental expenditure is mainly compulsory and less productive, such as defence and general administration.​
• Public expenditure is rising due to more government welfare functions, population growth, urbanisation and higher defence and administration costs.​

• Public revenue is the total income collected by the government from different sources.
• It is needed to finance public expenditure and is a core topic in public finance and economics.
• The two main sources of public revenue are tax revenues and non‑tax revenues.

• A direct tax is paid directly on a person’s income or property, and its burden cannot be shifted to someone else (e.g. income tax, wealth tax).​
• Proportionate tax: Same fixed rate on all income levels.
• Progressive tax: Tax rate increases as income increases.
• Regressive tax: Rich pay a smaller proportion of their income than the poor.

• An indirect tax is charged on goods and services, not directly on income.
• It is paid when a product or service is produced, sold or purchased (e.g. GST in India).
• Producers and sellers can shift the burden to consumers through higher prices, so the person who pays it to the government is not the one who finally bears it.

• Non-tax revenue is government income from sources other than taxes, such as fees, prices, fines, gifts and borrowings.
• Fees: Paid for specific government services, e.g. education fee, registration fee.
• Prices of public goods/services: Paid for services sold by government, e.g. railway fares, postal charges.
• Special assessment: Extra charge on people in an area that gets special facilities like better roads or streetlights.
• Fines and penalties: Amounts paid for breaking laws, e.g. traffic fines.
• Gifts, grants and donations: Voluntary payments or foreign aid given to the government.
• Special levies: High duties on harmful goods like alcohol or other intoxicants to reduce their use.
• Borrowings: Money raised through loans, bonds and deposits from people and institutions at home and abroad.

Public debt is government borrowing when its spending is more than its income.

Government budget = annual financial plan of the government showing estimated receipts and proposed expenditure for the coming financial year (1 April–31 March in India).

• It is an official financial statement of how the government plans to raise money (taxes, borrowings, other receipts) and how it will spend it (on defence, welfare, development, etc.).
• It is a constitutional requirement (Article 112) and is presented every year in Parliament as the central government’s budget.

Revenue and Capital Budgets are the two main parts of the government budget.

• Revenue budget: Includes revenue receipts (tax and non‑tax income) and revenue expenditure like interest payments, subsidies and grants to states.
• Capital budget: Includes capital receipts (loans, disinvestment, foreign borrowings, special deposits) and capital expenditure on development projects, investments and loans to states and government bodies.

• Balanced budget: Government receipts = government expenditure.
• Surplus budget: Receipts > expenditure; mainly used to control inflation.
• Deficit budget: Receipts < expenditure; used to raise spending, jobs and growth, common in developing countries.

• Decides tax rates, which affect business profits and people’s disposable income.
• Shows how much the government will spend on defence, infrastructure, education, health and welfare, shaping quality of life.
• Works as a main tool to implement economic policies, influencing production, employment and income distribution.
• Helps the government plan use of the country’s financial, human and material resources for growth and development.