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FINANCIAL ADMINISTRATION
The term financial administration literally means the job of managing
financial tasks for a company or an organization; for example controlling
the budget, writing financial reports, providing money for projects, etc.
This article however focuses on public financial administration. Public
financial administration deals with the principles and practices
concerning the efficient and prudent management of the funds/finances
of the government. It may also be defined as the machinery and method
by which funds for the implementation of public programmes and
services are raised, spent and accounted for.
Here on, the article would seek to look into the process of budgeting with
regards to financial administration in detail.
BUDGET
The budget in its elementary form had been part of almost all
monarchies of the history. There have been written documents regarding
the existence of the state treasury, accountants and auditors who were
employed by the monarchs to protect the royal treasury. The modern
democracies have the legislatures playing an important role in the
managing of public finances. The taxes that are collected and the
revenues that are generated by the government through several means
are to be used for the development and welfare of the society. The
emergence of the Welfare State made it important that the government
money is being judiciously used to better the living conditions of society
in general and the marginalized sections in particular.The process of
budgets fulfills important functions in the economy of the nation. They
act as a means to carry out several objectives of the public organization.
In some countries, the executive part of the government also plays an
important part regarding the revenues and expenditures of the
government and the legislative is reduced to just an approving and
reviewing authority, e.g. in UK where the budget process is primarily
dominated by the executive (the House of Commons). A more balanced
approach of distributing power is practiced in the USA where the
legislature can review and make changes to the budget presented by the
President and the President finally approves it after satisfactory checks
and balances are concluded.
The dominance of executive or legislature in the budgeting process is a
matter of debate as many consider the legislative to be an obstacle in
the fast paced globalized economy where foreign direct investment and
monetary funding from organizations like IMF and World Bank is of
crucial importance to several democracies. There are several measures
suggested to expedite the decision making process from fixing the term
of the legislatures, introducing citizen panels, attaching funding power at
local levels to bringing in two year budgetary cycle and special
legislation regarding expenditure management.
The government expenditure is funded by a common pool of tax payer’s
money and the policies that are formed with this money are further used
to fund projects. The catch here lies in the fact that the people who
actually are paying for these policies are the larger group while the
people who benefit from these policies might be a much smaller group,
which translates that one might not be enjoying the benefits for which
one is paying money. Such scenario leads to an excessive spending of
public money on policies which are not beneficial to the society as a
whole. Such situations are prevalent in democracies which are multi-
lingual, multi-ethnic and divided on the basis of regions, religions and
other factors.
TYPES OF BUDGET
Output oriented budget with long range perspective so that resources can
be allocated effectively or efficiently. It presents budget in the form of
functions, programs, activities, projects. Established correlation between
physical performance and financial aspects of each program. It leads to a
functional classification of budget.
Revenue budget
Capital budget
Surplus budget
This has to be checked particularly in the interest of those who have more
or less fixed income. This inflationary gap can be corrected by lowering
the level of effective demand in the economy. It can be corrected by
increasing taxes. This would increase the revenue of the government but
reduce the purchasing power of the people. As a result, the aggregate
demand will fall. This inflation gap can be corrected by lowering the level
of public expenditure. The surplus budget should not be used in a situation
other than the inflationary gap as it may lead to unemployment and low
levels of output as an economy.
Deficit budget
PREPERATION OF BUDGET
The budget is prepared by the Finance Minister with the assistance of
number of advisors and bureaucrats. The Finance Minister seeks the
view of the industry captains and economists prior to preparation.
Various accounting and finance related organisations send in their
opinions and suggestions .The budgeting exercise in India remains
mainly the domain of bureaucrats to participate and influence the
outcomes.
Normally, the budget-making process starts in the third quarter of the
financial year. The budget has four stages viz., (1) estimates of
expenditures and revenues, (2) first estimate of deficit, (3) narrowing of
deficit and (4) presentation and approval of budget.
ENACTMENT OF BUDGET
Once the budget is prepared, it goes to the parliament for enactment
and legislation. The budget has to pass through the several stages.
The finance minister presents the budget in the Lok Sabha. He makes
his budget in the Lok Sabha. Simultaneously, the copy of the budget is
laid on the table of the Rajya Sabha. Printed copies of the budget are
distributed among the members of the parliament to go through the
details of the budgetary provisions. The finance bill is presented to the
parliament immediately after the presentation of the budget. Finance Bill
relates to the proposals regarding the imposition of new taxes,
modification on the existing taxes or the abolition of the old taxes.The
proposals on revenue and expenditure are discussed in the Parliament.
Members of the Parliament actively take part in the discussion.
Demands for grants are presented to the Parliament along with the
budget.These demands for grants show that the estimates of the
expenditure for various departments and they need to be voted by the
Parliament. After the demands for grants are voted by the parliament,
the Appropriation Bill is introduced, considered and passed by the
appropriation of the Parliament. It provides the legal authority for
withdrawal of funds of what is known as the Consolidated Fund of India.
After the passing of the appropriation bill, finance bill is discussed and
passed. At this stage, the members of the parliament can suggest and
make some amendments which the finance minister can approve or
reject. Appropriation bill and Finance bill are sent to Rajya Sabha. The
Rajya Sabha is required to send back these bills to the Lok Sabha within
fourteen days with or without amendments. However, Lok Sabha may or
may not accept the bill.
Finance Bill is sent to the President for his assent. The bill becomes the
statue after presidents’ sign. The president does not have the power to
reject the bill.
EXECUTION OF BUDGET
The Lok Sabha has the power to assent to or to reject, any demand, or
to assent to any demand, subject to a reduction of the amount specified.
After the conclusion of the general debate on the budget, the demands
for grants of various ministries are presented to the Lok Sabha.
Formerly, all demands were introduced by the finance minister; but, now,
they are formally introduced by the ministers of the concerned
departments. These demands are not presented to the Rajya Sabha,
though a general debate on the budget takes place there too.
The Constitution provides that the Parliament may make a grant for
meeting an unexpected demand upon the nation’s resources, when, on
account of the magnitude or the indefinite character of the service, the
demand cannot be stated with the details ordinarily given in the annual
financial statement. An Appropriation Act is again essential for passing
such a grant. It is intended to meet specific purposes, such as for
meeting war needs.