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Financial Administration

Financial Administration

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Published by Abhijit Jadhav
Public administration IGNOU study material.
Public administration IGNOU study material.

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Published by: Abhijit Jadhav on Nov 06, 2010
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03/12/2014

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UNIT 1
NATURE
ANDSCOPE
OF
FINANCIAL ADMINISTRATION
.
,
'
Structure
ObjectivesIntroductionFinancial Administration
:
MeaningFinancial Administration
:
ImportanceNature of Financial AdministrationScope of Financial AdministrationComponents of Financial Ad~inistrationLet
US'SU~
pKey WordsReferencesAnswers to Check Your Progress Exercises
1
O
OBJECTIVES
After studying this unit, you should be able to
:
discuss the meaning, importance of financial administrationexplain the nature of financial administrationhighlight the enlarging scope of financial administration; andidentify the components of financial administration.
1.1
INTRODUCTION
Finance is the life blood of every organisation; Personnel and materials which areneeded for the functioning of any office, industry, enterprise can be made availableonly if money is provided.The efficiency of operating systems and maintenance systems depends upon theeffectiveness of financial system as every administrative act may have financialimplications. The significance of finance to public administration is quite obvious asis evident from the remark of Lloyd George: "Government is finance".Financial administration, as an important aspect of public administration islas anc~entas organised governments all over the world. In its rudimentary form, it was
*
performing certain limited functions till medieval times. In the pre-modern times, itwas conceived within the structure of legislative control over executive.Soqio-economic forces unleashed by industrial revolution have given a new meaning
i
and a dynamic content to financial administration. In the changed context, it is
I
!
expected to meet dynamic needs of planned development and social change.In this unit we shall discuss the meaning, importance, nature and scope of FinancialAdministration. The unit will also give us an idea about the various components of
I
Financial Administration.
'L
1.2
FINANCIAL ADMINISTRATION
:
MEANING
The term Financial Administration consists of two words viz. 'Finance' and'Administration'. The word 'administration' refers to organisation and managementof collective human efforts in the pursuit of a conscious objective. The word 'Finance'refers to monetary (money) resource. Financial Administration refers to that set ofactivities which are related to making available money tothe various branches of anoffice, or an organisation to enable it to carrying out its objectives. Whether it is theDepartment of Agriculture, Railways, Road Transport Corporation, Primary HealthCentre, Municipality or Gram Panchayat, or for that matter, a family, its day-todayactivities would depend updn the availability of funds with which financial
.
.
A,:,:,r-,.r:-,
:..
--------
 
Financial Administration
:
Basin
Now let us get to know some more accurate definitions of Financial Administration.
and
Objectives
According to L.D. White, "Fiscal Management include's those
operations
designedto make funds available to officials and to ensure their lawful and efficient use?According to Jaze Gaston "Financial Administration is that part of governmentorganisation which deals with the collection, preservation and distribution of publicfunds, with the coordination of public revenue and expenditure, with themanagement of credit operations on behalf of the State and with the general controlof the fina~cial ffairs of public household:'Though this definition covers some important aspects of fiscal management, it failsto project a comprehensive scope of financial administration. Perhaps, after realkingthis limitation, G.S. La11 states that financial administration is concerned with all theaspects of financial management of the State. Since public administration is more andmore concerned with public affairs and public interest, the frontiers of financialadministration are expanding and therefore there is a need for a comprehensivedefinition of financial administration. As an attempt towards this direction, thefollowing definition is presented."Financial Administration includes all the activities which generate, regulate anddistribute monetary resources needed for the sustenance and growth of the membersof a political community
,"
The
Distinction
between
Public
Finance
and Private Fiance
Finance function appears to be a generic process which takes place in both public andprivate organisations. But, one should not conclude that the principles and normswhich are applicable to private finance are equally applicable to public finance, fordespite the challenge to the historic "separate but equal doctrine" from theintegrationist movement of recent times, public organisations continue to possesscertain distinct characteristics. Dissimilarities between public finance and privatefinance are quite sharp and clear. 'According to Sundaram, these dissimilarities canbe outlined as follows:
Publk
Finance
1) Adjustment of income toexpenditurela) Popular control2) Elastic resources3) Resource mobilisation throughcoercive power4) Tendency towards deficit5) Direction of expenditure towardspublic service
Private
Finance
1) Adjustment of expenditure toincomela) Corporate control
2)
Limited resources3) No such power4) Tendency towards balancedbudgets5) Towards profit maximisationThe importance of Financial Administration was not considered till after industrialrevolution. The concept of minimum government as an offshoot of laissez fairedoctrine, dictated observance of minimum taxation. When social life became morecomplex as a result of industrial revolution, the role of the government increasedmanifold. Further, the concept of welfare state has caused phenomenal increase instate activity. The governments have entered into new areas which were kept out ofthe purview of the State. In this changed context, financial administration has gainedgreater significance for exploring ways and means to generate resources to meet theever-increasing public expenditure.The Great
Depression
(1929-33) had exposed the weaknesses of neutral economicstance of the governments. It enhanced the quest for stability in income andemployment as well as for equality and social justice. Based on Keynesianperspective, the State has assumed an active and positive role for expanding nationalincome and employment. It has also taken up the task of ensuring equity and
eniialitv Ficral nnlirv of the onvernm~nt ac hprnrnp a nnwprfi~lnctnirn~nt
n
 
~nfluencinghe socio-economic life of the people. Defence and administrative
Nabre
and
Scope
of
Financial
expenditure ldst its nonproductive label and assumed a new significance as a lever
AdmlnistraUon
for stimulating iricome and employment levels. Financial administration wasentrusted with the responsibility of formulating effective policies to achieve these newobjectives of the State. It was called upon to transform financial resources into publicpurposes and thus to improve the lot of the individual through distributive justice.With the advent of democracy, as a popular social institution, the concept of'parliamentary'control over public purse' has received universal acceptance. Theprinciples of "no taxation without tepresentation", i.e. "no public expenditurewithout parliamentary sanction" have become the guiding canons of modern politicalcommunities. There appeared an urgent need to devise a simple and systematicfinancial procedure in order to make financial system intelligible to the commonperson. Financial administration became an instrument of 'modern governments formaking "popular sovereignty" a social reality.The concept of planned development has enabled public administrators to play anactive and dynamic role in the formulation and implementation of developmentschemes and projects. The time and cost of implementing these projects have becomecritically important. The accent of financial administration has shifted from one ofcontrolling the disbursement of funds to one of management of various developmentprojects and programmes. The rise of performance budgeting and other relatedbudgetary innovations represent remarkable achievements of financial administrationin meeting this challenge. From the early eighties onwards, resource crunch hasbecome a very serious problem of modem governments. While there is a tremendouspressure on the modem governments to increase their expenditure outlays to meetthe ever expanding ambitions and demands of the people the taxpayers are unableor unwilling to bear additional tax burdens. In this dilemma, a need has arisen for acareful prioritisation of public expenditure. Hence a study of financial administrationand management which are a part of public administration has become important toseek out ways for eliminating unwanted expenditure and ensuring optimisation ofoutput on a limited resource base. Zero Base budgeting is an attempt in this direction.To sum up, financial administration is playing a dominant role in modem times.
ChecLYaUrProgressl
Note
:
) Use the space given below for your answers.ii) Check your answers with those given at the end of the unit.
1)
Explain the meaning of Financial Administration.
2)
List any three points of distinction between public and private finance.
3)
Why has the study of financial administration become important in recent times?

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