Tuesday, October 13, 2015

Financial Administration in India: Meaning, Principles and Agencies involved in it

Meaning of Financial Administration
In simple words, financial refers to such a system or method by which one can analyse the financial working of the public authority. Thus the focuses on the procedure which ensure the lawful use of public funds. However the concept has been differently defined as under:

Prof .M.S Kenderic, “The financial administration refers to the financial measurement of govt. including the preparation of budget method of administering the various revenue resources the custody of the public fund, procedures in expending money, keeping the financial records and the like. These functions are important to the effective conduct of operation of public finance”

Prof. Dimock, “Financial administration consists of a series of steps whereby funds and made available certain official under procedures which will ensure their lawful and efficient use. The main ingredients are budgeting, accounting, auditing and purchase and supply.”

From these definitions one can easily find four ingredients (Methods/Process) of financial administration:

1)      Budget. The term budget has been derived from the French word “Bougette” which means a leather bag or a wallet. The chancellor of Exchequer in England used to carry his papers in the bag to House of Commons. Prof. Willoughby defined, “Budget-it should be at once a document through which the Chief Executive comes before the fund-raising and fund grading authority and makes full report regarding the manner and which he or his subordination have administered affairs during the last completed year ; in which he or exhibits the present conditions of public treasury and one the basis of such information sets forth his programme of for the year to come and the manner in which the purposes that such work should be financed.” 

In the word of Prof. Dimock, “Budget is a balanced estimate of expenditure and receipts for a given period of time. In the hands of the administration, the budget is a record of part performance a method of current control and a projection of future planes.”

2)      Accounting. Accounting is the record ingredient of financial administration. It is an art by which the financial effects of executive action are recorded, assembled and finally summarized in the form of the financial reports. A good according system is indispensable for adequate budgeting control. Therefore, there must be harmonious relationship between the goals in budget and financial statements prepared from accounts.

3)      Auditing. Auditing is a considered the final stage. In fact, it is investigation of report and legally, efficiency and accuracy of the financial transactions. Audition is of two types i.e. internal and external. The Chief Motto of audit is only to supervise the manner in which expenditure has been made in order to ascertain whether the executive has spent in accordance with rules and regulations. Auditing is an independent department who points out reregulation and submits its report to the higher authority.

4)      Purchase and Supply. As the name implies, it is the acquisition of the property. In other words, purchasing is a report of large category of supply which covers specialization traffic management, inspection, storage and proper utilization of different resources.

Generally, in democratic set up, there are guiding principles for the operation of financial administration. They are:

a)      Principle of Unity in the organisation: We all know that unity provides strength to all of us. According to this principle, there must be control of central authority on financial administration. However, it does no mean that every work is done by superior authority. It simply means that there must be close coordination between different executives and higher executives should have full control over on the activities of their subordinate executives.

b)      Principle of simplicity and regularity: According to this principle, financial administration should have the quality of simplicity, regularity and promptness. Red tapism should be totally eliminated and the work procedure should be quite simple, clear and easily understandable by the average person.

c)       Principle of Compliance with the will of the legislature: According to this principle, no expenditure out of public revenue is incurred unless it is sanctioned by Parliament. In the constitution of India, it has been mentioned as, “No money out of the consolidated fund of India or the consolidated fund of a state shall be appropriated except in accordance with the law and the purpose and the manner as passed by legislature.

d)      Principle of effective control: According to this principle, it is essential to have effective control at every stage of financial administration. Generally the following agencies are involved in the control of financial administration of the government:
1)      Executive
2)      Legislature
3)      Financial Department of Financial Ministry
4)      Auditing Department
5)      Parliamentary Committees

e)      Principle of Uniformity: According to this principle, there must be uniformity in all departments or sections of the government as to policies of expenditure, revenue and loan etc.

f)       Principle of Authority: According, to this principle, no tax shall be levied or collected unless it is approved by the representatives of the people. In the constitution of India has been mentioned as “No tax shall be levied or collected except by authority of laws.”

g)      Principle of Accountability: According to this principle, Every Government is bound to spend the money granted by the parliament for no purpose other than it was sanctioned by the legislature or parliament. In order to check the abuses of owners on the part of executive, the Auditor-General audits the a/c of the Govt. to place before the legislature a report to show that the executive has spent the money for purposes for which Parliament has sanctioned. Thus the provision for the appointment of comptroller and Auditor-General is laid down in the Indian Constipation to achieve the above objective.

For the success of financial administration of the Government, different constitution play imperative role. These agencies can be grouped as:
a)      Executive
b)      Legislature
c)       Financial Department of Financial Ministry
d)      Auditing Department

a)      Executive. According to Prof. H. M. Grover, “The executive is the best position to the view the financial problem as a whole ant to assume the responsibilities for the success and failure of a financial programme.” Executive is responsible for running the administration, thus it is in the best position to say what funds are required for it. No tax or expenditure can be made without the permission of the executive. It is therefore, the responsibility of the executive to prepare the budget which is stupendous task.
In Parliamentary Government, there is a principle that no demands for grants can be made except on recommendation of the executive. It is therefore In India; executive refers to the Central Government. Since, Finance Ministry is responsible for the administration of the finance of the Central Government, even then it performs the policy making function and tries its best to get the final approval of the legislature.

b)      Legislature. In democratic parliamentary system, it is the legislature or parliament which is the time representation of the people. In India, under the constitution there is special provision to control the finances:
1.       Controller over Taxation. Indian constitution under Article 265 provides that no tax shall be levied or collected except the permission of law. Thus, The Government has to present all tax proposals before parliament in the form of a Bill to be passed into law and unless no art is passed, no tax can be levied. Similarly U.S.A constitution under article one mentions, “The congress shall have to levy and collect tax.”Therefore under, we can conclude that the power of taxation always vests with literature.
2.       Control over Public Expenditure. In Indian constitution states. “All revenues received of all loans by the union or state shall be paid into in the consolidated funds of the union or state, as case may be ad that no money can be written out of  the fund except in accordance with the law and for the purpose and in the manner provided for in the constitution.”
3.       Enforcement of Financial Accountability. Every Government is bound to spend the money granted by the parliament for no purpose other than it was sanctioned by the legislature or parliament. This function is performed by the Comptroller and Audit-General of India. In this way, one can say that Parliament is the supreme in Finance matters.

c) Financial Ministry. This Finance Ministry plays significant role in financial administration as it ensure that proper use of public funds. It controls the both before the presentation of budget to parliament to and in it executive after approval by the parliament. The Finance Ministry possesses the expert knowledge in financial matters. It considers all proposals to each ministry in the perspective of the government as whole.
The various scheme and proposals of the different ministries are included in the budget after consultations and discussions with the finance ministry. After the final approval of the budget by the parliament, it seeks to ensure that the amounts are properly spent in accordance with the provision of budget. Therefore, it is the finance ministry which frames rules and regulations about the preparation and executive of the budget. The ministry of finance has been divided into four departments, viz
1.       Department of Economic Affairs.
2.       Department of Revenue and Insurance.
3.       Department of Expenditure.
4.       Department of Co-ordination.

d) Auditing. Auditing is the most important ingredients of parliamentary control over the finances of country as a hole. In a democratic form of government, the supreme authority with the regard to financial policy is vested in legislature. This is ensured by the provision of audit of public expenditure by an independent statutory authority i.e. Comptroller and Audit-General. Therefore, audit supplies an essential link between the executive and parliament and helps in interpreting the action in so as the have a finance bearing of the former on the latter.