Public Finance And Budget

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What are social sciences

Philosophy of Social Sciences

Teaching of Social Sciences

Curriculum and Syllabus

Topics in Social Science

Textbooks

Question Bank

ಕನ್ನಡದಲ್ಲಿ ನೋಡಿ

Concept Map

Syntax is:

[maximize]

Additional References

How the topic is discussed in NCERT Books

  1. NCERT Text Book - Class 12th, Chapter 5 - The Government - Budget and Economy discusses public finance and budgeting. It is advanced in its treatment of the topic. It has a detailed explanation of the components of receipts and expenditure (which is listed in the mind map). It gives data from Indian budgets. It also discusses the concept of 'fiscal policy', how the government can use budget as an instrument for bringing about economic changes. It is useful reading for teachers

Useful websites

Government sites

  1. Government of India Ministry of Finance

Wikipedia pages

  1. Public Finance
  2. Government_revenue
  3. Government_expenditure
  4. Government spending

Purpose

  1. efficient allocation of resources
  2. distribution of income
  3. macroeconomic stabilization
  4. public good

Receipts

  1. Tax
  2. Non-tax_revenue
  3. Government_debt

Other websites

  1. Public Finance explanation
  2. Economist magazine articles on public finance

Institutions for Public Finance

National Institute of Public Finance and Policy

Reference Books

  1. Book from ISEC,Bengaluru
  2. Article on financing of education in Karnataka
  3. Economics of Public Finance By Alan S. Blinder

Teaching Outlines

Public finance is the branch of economics which assesses the government revenue and government expenditure of the public authorities. It sees how revenue and or expenditure needs to be adjusted to achieve desirable ends and avoid undesirable ends. (from Wikipedia). Hence it is an important tool of Economic policy very important area for a developing country like India, which has several social and economic goals.

Key Idea #1 Introduction to Public Finance

Learning objectives

  1. Meaning of public finance, how it is different from private finance.
  2. Understanding the multiple goals of public finance
  3. Understanding the components (receipts, payments) and sub components (tax, non tax revenues, borrowings constitute receipts)

Notes for teachers

This can seem like a difficult and dry topic. However, if we take the actual budgets and finances of the central or state government and interpret it with the students, it can be quite interesting. Also instead of only looking at numbers, if we can convert to percentages and study, we will get an idea of the relative priority of different items in the budget/expenditure. Comparing the same item between Karnataka and India, and across states will give an idea of the relative priorities of different states. For instance, Kerala providess a high percentage of its expenditure for education and health, and this is corrleated to the much better education and health outcomes in that state. This kind of analyses can help students to think about what should be a state's priorities.

Economists have had diverse views of the scope of public finance. On one side, are those who believe in 'least government role', they would like to minimise role of public finance, to collecting minimum taxes to finance basic duties of the state such as defence and law and order. Adam Smith was one of the earliest and popular economists, whose views were seen as supportive of laissez faire. However, since the economist Keynes, it is accepted that Governments need to spend on the three goals - allocation, distribution and stabilisation. Even a strong supporter of laissez faire like Friedrich Hayek agreed that public finance was required to stabilise the economy and counter the business cycles (of boom and recession). Bringing in these opposite views of Keynes an Hayek and asking students to discuss their arguments can make it interesting. Their ideas can be compared with the current practices in public finance. (In India, Keynesian economics is very strongly adopted - the Governments raise funds using tax as well as borrowings and deficit financing and use it for developmental expenditure). However, Governments in India have also become sensitive to the problem of inflation, which is caused to a large extent by deficit financing and have passed a law restricting the extent of deficit financing.

Activities

  1. Activity No #1 '''Public finance and budget public finance introduction- Activity 1.'''
  2. Activity No #2 '''Public finance and budget public finance introduction- - Activity 2.'''

Key Idea #2 Public Expenditure

Learning objectives

  1. Understanding the meaning of public expenditure, how it is different from private expenditure
  2. Understanding the key items of public expenditure

Notes for teachers

Teachers can check newspaper for articles discussing the Indian or Karnataka budgets. You can check on-line for news items around February to find articles on public finance, public expenditure etc.

Just talking about absolute amounts may become difficult to understand. Converting the amounts to percentages may make it easier. For eg. converting the total expenditure outlay for the year into 100, you can derive the percentages of other expenditure items, such as education, law and order, health etc. This will give the students a better relative idea of the importance given by the state to different items.

Activities

  1. Activity No #1 '''Public finance and budget public finance public expenditure - Activity 1.'''
  2. Activity No #2 '''Public finance and budget public finance public expenditure - Activity 2.'''

Key Idea #3 Receipts

While for any one individual or institution, the types of income are quite limited, for a Government, it is not so. Governments have the right to levy and collect tax, which is not available to others. Hence this means that Governments can increase their revenues by suitably adjusting the tax rates and also increasing the coverage for a tax. Hence as the text book mentions, while individuals will try to manage their expenditure based on their income (revenue), for Governments, it is often the opposite - they work out the amount of expenditure they want to incur and then see how they can raise revenues.They can also borrow. In addition governments can also do 'deficit financing' which individuals cannot, this is explained in next concept.

However tax income cannot be raised to any extent, since it can have an adverse effect on savings, consumption expenditure and investments.

Borrowings tend to be an important source of funds for Governments. Public debt in most countries keeps raising. However over reliance on borrowings can lead to 'debt trap' when the government needs to borrow to pay interest on earlier loans!

Learning objectives

  1. Meaning of public receipts
  2. Components of public receipts

Notes for teachers

Debates amongst students about the benefits/advantages and disadvantages of different kinds of receipts can make this topic interesting to learn. Also comparing across time can give the student a good idea of the evolution and changes in receipts. Students can debate the pros and cons of the different methods of raising public finances - Tax, Non-tax_revenue, Government_debt

Some countries have greatly benefited from receipts from exporting mineral wealth, for instance the Arabian Gulf countries (and Norway etc). from export of petroleum and petroleum products. this has made their public finance processes quite different from other countries. However, receipts from mineral wealth is not a perennial source and can end when mining becomes unviable. There are some countries where tourism is a big source of revenue, such as Switzerland or Thailand. A large country like India has several sources for public receipts.

Activities

  1. Activity No #1 '''Public finance and budget public finance receipts- Activity 1.'''
  2. Activity No #2 '''Public finance and budget public finance receipts- Activity 2.'''

Key Idea #4 Deficit Finance and Fiscal Deficit

One of the most interesting and contested concepts in public finance, is that of deficit financing. Initially, it was believed that like individuals, Governments must also 'balance' the budget, that is the receipt and expenditure must match. Excess of expenditure was believed to be economically and also ethically wrong! However John Keynes, one of the most brilliant economists, explained that Governments could spend more than the amounts they received, by simply printing more currency! Such printing of currency is termed deficit financing.

In India (and rest of the world), there is an attempt now to restrict the extent of deficit financing as a percent of the total budget outlay/GDP

Learning objectives

  1. Meaning and purpose of deficit financing
  2. Benefits and dangers from fiscal deficits

Notes for teachers

Deficit financing can be an interesting concept ... and it can also be difficult to understand (though many student will simply ask - why cant the Government simply print money to take care of all its expenditure!!)

Activities

  1. Activity No #1 '''Public finance and budget public finance deficit finance Activity 1.'''
  2. Activity No #2 '''Public finance and budget public finance deficit finance Activity 2.'''


Assessment activities for CCE

Ask students to collect information and make the school budget for a month. Ask them to compare the school budget with the budget of the Karnataka Government and compare and contrast the same. You can ask them to convert amounts to percentages, so that it is easier to compare.

Project Ideas

  1. Study the percent expenditure of Indian Government budget for 1991, 2001, 2011 on education. Analyse the same. You can read the writings of Prof Jandhyala Tilak on the financing of Indian education.
  2. Students can try and make a mock budget for their village/town.

Community Based Project

  1. Meet the local government (panchayat) representatives and find out what are their priorities and challenges on raising and spending finance for local development. What are the biggest receipts for grama panchayats? What are the typical expenditure items.
  2. Interview around 5 members of the community to check if the above priorities are shared by them, of if they think differently. Write it out, and add your own opinions and judgements.

Textbook Feedback

Please add below suggestions/ errors in the Karnataka text book chapter on 'Public_Finance_And_Budget'

Chapter 4 is very well written and gives a good picture of the need for rural development. The activities given at end of the chapter can help in formative assessment.

Errors

Percentage of estimated revenue of Central Government in 2013-14. The graph is incorrect, the 'Debt and Other liabilities' is given as 29% in graph. It should be 27% (as given alongside the graph)

Spelling errors

Table in Receipts section says "Foregin income", it should be "Foreign Income"

Can be explained better

  1. The concept 'Fiscal Policy' is used but not explained.
  2. The sentence "The statement of estimated income and expenditure of a year prepared by the government is called Budget." is not correct. It should be

The statement of estimated receipts and payments of a year prepared by the government is called Budget". The receipts includes both income (revenue receipts) and capital receipts (borrowings etc). Similarly the payments includes both revenue and capital expenditure