Introduction
"In ancient times, public finance was a weak, ineffective, very limited, and often useless branch, but in the political economy of the present day it has become a very surprising field." Public finance is also called revenue. In ancient times, public finance did not exist as a science. The ancient state used to perform many functions and for these functions the government needed funds. At that time public property and economic development were not the area of public finance.
Recognizing the importance of public finance, eminent economists divided the subject of public finance into income, expenditure, and public debt. The function of the state is not only to establish political security and peace but also to establish a permanent balance in society.
Social security is provided through insurance and certain types of businesses are run only with state licenses. The state punishes the adulteration of goods. Income and expenditure are controlled by imposing taxes. Information about death is also given by the state to a specific institution and the state also takes care of the cremation site. The state not only manages the security of the country but also manages and controls the economic life of the society. The state also provides facilities for public exchange at every level. For this reason, today the scope of the state has become quite broad.
Also read- Public finance: Is public finance, Science or Art? Give the subject matter of public finance.
A HISTORICAL REVIEW OF PUBLIC FINANCE
Public finance is considered an important part of economics. It would not be wrong to say that public finance was the forerunner of political science and economics. The development of this branch of economics started in Germany. In his book, Rickards has only studied the limits of taxes and their effects. J. S. Mill has written in detail on various aspects of public finance in his work. Eminent economists have recognized the income, expenditure, and debt-related aspects of revenue.
Adam Smith expressed his views on this in England and naturalists in France, yet its development as an independent science was not possible there. In England, Bastable gave it a systematic form in 1892, after which H. C. Adams, W. M. Daniels, Seligman, etc. contributed to this science. Till the beginning of the 20th century, the duty of the government was to establish peace in the country, provide justice, work for the welfare of the public, and protect it from external attacks. People in the country were given freedom in economic activities. Man was considered a part of society and his actions provided benefits to the entire society.
However, during the First World War, many flaws in economic freedom arose in society, due to which capitalism was born and encouraged and government intervention was considered necessary. During the last two world wars, there was a shortage of goods, and the responsibility for the same was handed over to the government. At present, the government system is considered necessary to run the economy of the society properly. After the war, it was considered the responsibility of the government to rebuild the economy and fully exploit the resources. Government interference is also increasing in the economic sector. The development of the country is done based on plans for which money is arranged and spent in the interest of the public.
Therefore, receipt of public income and public expenditure are studied in revenue. The economic development of the country is done based on government programs. Inflation in the country is controlled through fiscal policies and revenue instruments are also used. Scholars like Lerner, Musgrave, Prest, etc. have thrown special light on revenue.
Tariff measures are used to increase economic growth, which is a modern development. At present, an unbalanced budget is used to prevent inflationary tendencies. Efforts have been made to bring economic stability to the country by adopting the public investment system in a planned manner.
Also read-Public Finance: Meaning, definition, scope, nature, and Importance
STATE'S PARTICIPATION IN ECONOMIC LIFE
The issue of whether there should be government intervention in economic life or not has been a subject of controversy since ancient times. At present everyone agrees that just as the role of the state is primary in civil administration, similarly the role of the state should be primary in economic administration. The importance of the state for general welfare is increasing.
Pro. Laski thinks that "the state is the foundation stone of the arch of society which molds the form and nature of those many human lives, whose destiny is also the responsibility of preserving it." The state being a public institution, it must protect the interests of its citizens. In ancient times, government intervention was limited to political activities only. But at present the state is interfering in the entire life of a person. Along with the security of the individual, the nation also regulates the economic sector of society. No part of economic life is free from the hands of the government. This touch can sometimes be light, sometimes heavy, sometimes arbitrary, and sometimes beneficial.
Steiner thinks that "the power of government is at present felt in every home, every factory and every farm." In comparison to ancient times, the extent of government interference is increasing in the present times. Third World nations cannot raise their economic standards unless their governments play an active role in economic development. If an independent economy was accepted in economic development, economic development of semi-developed nations would not have been possible and most of the nations of Asia would have remained troubled even for livelihood.
List's opinion is that "Experience tells us the truth that the winds carry the seeds far and wide and because of those seeds, dense forests have grown on the barren lands. But would it be wise to wait for the winds to bring about this transformation?" Semi-developed countries have to face many obstacles in competing with developed countries. Due to a lack of support from the state, the economy of these countries continues to falter. The state also takes care of which part of the country remains untouched? Realizing the need to develop those underdeveloped areas of the country, the state makes efforts to develop them.
Other ancient economists started raising slogans of economic freedom and started waving flags of 'free trade' everywhere. But along with the Industrial Revolution, monopolistic organizations started growing in the country, which encouraged inequality and discouraged new investors. In an uncontrolled system, only a few select individuals can establish their empires, and the resource-less and enthusiastic investors find themselves in a pitiful situation. Therefore, government intervention was considered appropriate to save this monopoly situation and to provide social justice to producers and consumers.
Arthur Lewis thinks that "No country can achieve economic development without the active encouragement of its intelligent government." The economic development of such nations cannot be left in the hands of the private sector, because private businessmen, motivated by the motive of personal profit, do work which proves to be an obstacle to development. There are some works which are necessary for the benefit of the public without any profit and these works can be completed only by the state. Therefore, the place of the state has become important in economic life.
ECONOMIC ACTIVITIES OF MODERN STATES
The gradual history of the development of public finance shows that with the changes in the circumstances of the country, changes in government intervention also started taking place. In ancient times, the state only provided security to the country from external attacks, but in the present time, in a democratic economy, it has become necessary for government intervention to solve problems ranging from the employment of citizens to drinking water. The lack of benefits in all welfare states keeps private entrepreneurs from coming forward. The private sector always strives for its own development and growth and tries to increase personal wealth. It has nothing to do with doing good to the public. The public sector has expanded due to many evils of the private sector. To prevent many types of economic evils, only a representative government of the state is considered appropriate. The scope of government intervention to arrange all this is also increasing. Dr. D. Brightsingh thinks that "Government intervention has emerged in progressive economies as a solution to the capitalist crisis, but in developing countries, the state has increased its economic power only because of the prevailing backwardness."
FUNCTIONS OF THE STATE
The functions of the state can be placed in the following three categories-
(A) National construction work
This is the oldest work in the country. Ancient rulers used to build roads, shady trees, temples Dharamshala, etc. to attack from one state to another and to transport their army from one place to another. Ashoka the Great also did many works for public welfare. To provide employment, Keynes thought that pits should be dug and filled. Nawab Asaf-ud-Daula of Lucknow demolished and rebuilt many minarets on the banks of river Gomti so that people could get employment through public works. Even at present, national construction works include the construction of ports, construction of airstrips, river valley planning, railways, construction of roads, etc. Maximum social benefit can be obtained from these works. This work has been done by the rulers from ancient times till today.
(b) commercial work
To remove economic inequality arranging equitable distribution and increasing public income, the states took over the work related to trade and commerce. In this, the government regulates internal and international trade, controls the exploitation of natural resources, and operates industries of national importance keeping in mind the public interest. In the socialist rule, entire trade and commerce remain under government control. In a capitalist economy, industries of national importance are run by the government.
(c) protective function
Since ancient times, when the society lived in an organized manner under the protection of its head, the responsibility for the security of the society was still on the government. With the development of the nation, the burden of internal and external security on the government increased. In ancient times, even kings and emperors used to spend huge amounts of money on the army for the security of their country. Efforts were made to bring happiness and peace to his kingdom. At present, friendly nations spend money directly and indirectly on the security of other friendly nations, which is their moral responsibility. The weapons used in war are kept confidential. Scientific inventions are made to develop war technology, on which spending money on a large scale is also the main task of the government.
FACTORS RESPONSIBLE FOR INCREASING STATE'S ECONOMIC FUNCTIONS
At present, government intervention and government contribution in the economic sector are expanding, for which the following main reasons have been held responsible -
(1) Monetary policy
The state can improve the economy by changing monetary policy. Monetary control is carried out to manage the frequent fluctuations due to the expansion and contraction of the currency, for this, the help of the main bank of the country is taken. The level of production and employment can be increased by controlling the credit system and banks can also be nationalized for this purpose.
(2) Full employment
Providing employment has become the main duty of the government in socialist and communist countries. In socialist countries, the government has to make such plans which can create maximum manpower. In ancient times, it was not the job of the government to remove unemployment. Unemployment is removed through public works. Unemployment eradication has become a major part of national policy.
(3) Direct participation
The government plays a direct role in social welfare works. It will not be possible to run the economic institutions belonging to the poor class through the private sector alone. Therefore, the entire responsibility of overseeing the creation and development of all institutions of public utility rests with the State. Cooperative partnership reduces the economic evils of the private sector.
(4) Public finance operations
To organize the economic administration of the state, he also has to perform functions related to public finance. A deficit budget is considered good in welfare states. To meet this deficit, new means are sought, and internal and external loans are taken. Taxes are collected from the rich class and spent on the welfare of the poor. While doing this, efforts are made to remove economic inequality and it is also seen that it does not harm the ability and willingness to save and spend.
(5) To influence new promoters
The state's effort is to create such an economic environment that new investors in the country are encouraged and old adventurers also use new technology. This ends the tendency of monopoly and centralization in the country and proper exploitation of natural resources starts. But these industries can be developed by giving tax exemption, the exemption in the import-export system, etc. to the industries. There may be a ban on betting prevalent in the country.
(6) Regulation and Control
Economic life can be organized by intervening through planning. Both consumers and producers are affected by currency expansion, currency contraction business cycle, etc. and economic life gets disrupted due to uncontrolled activities. With the help of law, the government tries to control the economic weaknesses and evils prevalent in the country. To maintain the economic system of the country, the economic, social, and political conditions of the country are kept in mind, and necessary steps are taken against the person creating obstruction.
(7) Maintaining Economic Framework
The internal and external conditions of the country affect the economic structure. By controlling import and export in international trade, the economic structure of the country can be protected and new technology of production can be developed in the country. The government also strengthens the economic structure by making laws and bringing necessary changes to old laws.
(8) Public Utility Services
Due to the increase in human needs, the systems of production and distribution have become more complex and to meet the collective needs, the government has taken into its own hands the arrangement of many public utility services. Due to the low-profit margin for these services, private adventurers hesitate to do these works.
(9) Utilisation of Human Resources
Proper development of the nation can be achieved by creating human capital by the government. Due to a lack of resources, a person is not able to spend appropriately on education, housing, nutritious food, etc. The contribution of technical experts is also important in nation-building.
(10) Monetary Assistance
Due to a lack of resources, under-developed countries are not able to make public investments in their country, due to which the consumption level and per capita income remain low. To get rid of the economic vicious circle, developed countries provide economic assistance to developing countries. The government provides direct and indirect monetary assistance to needy people which can be given in the form of aid, grants, and loans. By providing protection to industries and arranging sales by the state, appropriate benefits can be provided to producers and consumers.
(11) Economic Planning
Nowadays economic planning has become an important part of national policy in the country. To fulfill this, the government has to spend on a very large scale and its financing is done by imposing taxes in the country or by taking loans from abroad. The government plans resources to achieve certain objectives and efforts are made to utilize the limited resources to the maximum. Efforts for development in India were made through the first five-year plan from 1951 and to date the country's development has been done based on planning.
LIMITATION OF STATE'S ECONOMIC FUNCTIONS
At present, everyone is unanimous that government intervention is appropriate for rapid economic development and an increase in social welfare. But this intervention applies only to certain limits and it also has some limitations of its own. The limitations of government actions can be placed as follows-
(1) Complete State Intervention
According to this opinion, the government should do all the development work itself. Leaving these functions to the private sector will not yield maximum social benefits. Such an environment should be created in the country so that capital formation in the country can be facilitated and the government itself should work as an entrepreneur by making a planning framework. Since this ideology is influenced by socialist ideas, the government should intervene directly in every resource. The private sector cannot be depended on because it focuses only on the development of the private sector and does not care about the development of the public.
(2) Gradual Intervention Concept
According to this ideology, the government should not intervene effectively in the economic sector. Government intervention in this should happen gradually. It is also called 'minimum necessary effort for development'. Sometimes government intervention can be fatal for the economy. Considering the circumstances of the country, attention should be paid to government intervention. With the establishment of a socialist society in India, industries are established in both government and private sectors, but the government sector is continuously expanding. Private enterprise continues to flourish with government inspiration. The government also cannot succeed for long without the support of entrepreneurial enterprises. Therefore, government intervention should be centrist.
GOVERNMENT EFFORTS TO PROMOTE ECONOMIC DEVELOPMENT
Government efforts for economic development can be put in the following two forms:
(I) Direct Measure, and
(II) Indirect Measure.
(I) Direct measures
This includes the following-
(1) Mobility of Factors of Production- In semi-developed countries, economic development is not possible on its own due to the predominance of agriculture, traditional approaches, backward technology, etc. The government encourages development by providing various types of economic protection to entrepreneurs. Development work can be taken forward by discovering new natural resources. In this way, mobility can be brought into the means of production.
(2) Direct Participation in Industrialisation- To prevent economic concentration in the country, the government itself runs the industries. This can promote competition in the market. The government can also differentiate the boundaries of public and private sectors. When the condition of the country becomes stronger, the management of the industries is transferred to the private sector.
(3) Institutional and Organizational Changes- Institutional changes can be brought about by the state by improving the rules of land reforms, inheritance, etc. The government regulates competition in this sector. By controlling monopolies, the condition of consumers and industries can be improved. Old traditional tendencies can be eliminated by improving various rules.
(4) Economic and Social Services- With the help of major economic capital, the government can develop the country economically. Economic development can be accelerated by investing capital on a large scale. The government can develop the country by carrying out important economic and social schemes.
(II) Indirect measures
This includes the following-
(1) Monetary Policy- By making the monetary policy flexible, the economic development of the country can be achieved along with earning income for the government. Through ideal monetary policy, currency expansion can be stopped and regulation of credit can be possible. The Bank's actions can produce concrete programs. Economic development can be made possible with the help of other similar policies.
(2) Price Policy- Due to increasing in population, demand increases and prices also increase, due to which consumers have to face many difficulties. Therefore, the government provides relief to producers and consumers by adopting a fair price policy.
(3) Functional Finance Management System- At present, economic development can be influenced by adopting a functional finance management system. In this, budgets are made appropriately and evils can be eliminated.
(4) Fiscal Policy- In this regard, the fiscal policy of the government can be helpful in the following ways:
- The tax system should be such that along with the income received by the government, taxes do not hurt production and production continues to increase.
- By adopting various methods, individual entrepreneurs can be encouraged and economic development of the country can be possible.
- Economic growth can be increased by limiting deficit financing. The government can influence capital accumulation and inflation through fiscal policy.
- Public debt and public expenditure can be used in such construction works that optimum production can be achieved. The government can overcome the shortage of courage by doing many things itself.
(5) Tariff Policy- The main objective of this policy is to stop imports from foreign countries so that domestic industries can be encouraged and employment can be increased. Export promotion can be promoted by giving protection to indigenous industries. Economic development of the country can be possible by changing the foreign trade policy.