Public and private finance

A Presentation on Public And Private Finance

1. PUBLIC and PRIVATE FINANCE COURSE TITLE :- Economics-II COURSE CODE :- BCH 420 Rajbardhan Singh B.A.LL.B.(H) [email protected]

2. Introduction Public Finance Private Finance Similarities Differences Conclusion CONTENTS

3. INTRODUCTION Capital funding is key for any trade, and it plays a very important role in every division. It is awarded by certain companies and financial institutions based on the demand from the business. Public finance is the finance sector that deals with the allocation of resources to meet the set budgets for government entities. It includes savings accounts, insurance policies, consumer loans, stock market investments, retirement plans and credit cards. Personal finance deals with the process of optimizing finances by individuals such as people, families and single consumers. Both public and private finance are fundamentally similar in nature but different from each other on various operational aspects. The similarities and dissimilarities between public and private finance have been explained in the following presentation.

4. PUBLIC FINANCE Public finance is the study of the role of the government in the economy. It is a field of economics which deals with financial activities of the state or government at national, state and local levels. It is a study of income and expenditure of central, state and local government and the principles underlying them. In simple words, public finance is the topic of the study of government revenue and expenditure. It is an economic sector that allocates funds to various public entities based on the set budget and timelines.

5. Its objective is to offer maximum social advantage to the society and provide public utility services. According to Hugh Dalton, “Public finance is concerned with the income and expenditure of public authorities and with the adjustment of the one to the other. Richard Musgrave, a renowned Economics professor, terms Public Finance as a complex of problems that are centered around the income and expenditure processes of the government. Public finance has several branches; public revenue, public expenditure, public debt, budget policy and the fiscal policy.

6. PRIVATE FINANCE Private finance is money management by an individual or a private entity. It is the study of income, expenditure, borrowing and financial administration of individual or private companies. It involves the acquisition of assets and the proper allocation of funds in a manner that maximizes the achievement of the objectives set. Its objective is to fulfill private interests and to gain profit.

7. Private Finance can be classified into two categories the Personal finance and Business finance. Personal Finance deals with the process of optimizing finances by individuals such as people, families and single consumers. Personal finance involves financial planning at the lowest individual level. Business Finance involves the process of optimizing finances by business organizations. It involves asset acquisition and proper allocation of funds to in a way that maximizes the achievement of set goals.

8. SIMILARITIES Objective :- Satisfaction of human wants is the main objective of both public and private finance. The main aim of public finance is to satisfy social wants and that of private finance to satisfy individual wants. Basic Principles :- The principle of maximum social benefits is the guiding principle followed by the government while spending its income. Individuals also follow the principle of maximum satisfaction when spending out his given income. The Principles of Rationality : - For both kinds of finances, the

9. guiding principle is rationality. Rationality is in the sense of maximization of personal benefits and social benefits through corresponding expenditure. The resources at the disposal of private individuals and public authority are limited. Therefore, in both cases, maximum care is taken to ensure better utilization of scarce resources. Scarcity of Resources :- Both have limited resources at their disposal. Both public and private individuals are required to match their income and expenditures in such a way that both make the optimum use of resources which are scarce.

10. Borrowing :- Since the resources available to both are limited, so in case of shortage, borrowing can be done by both public and private finance and both are under obligation to repay the borrowed money. Policies :- Both the private and public finances adopt policies for maximizing welfare. In Private finances as well as in public finance only sound policies will enable maximization of welfare and benefits.

11. DIFFERENCES Meaning :- Public Finance refers to that branch of finance which studies government financial dealings, including government spending, borrowing, deficits and taxation. On the flip side, by Private Finance, we mean the study and analysis of the income, expenditure, and debt of private individuals, firms and household. Budget :- Public finance is related to the yearly budget of the government, which is fixed, but private finance is related to daily, weekly or monthly budget of an individual or household. Transparency :- In private finance, the individual’s income and his/her

12. expenditure is his /her own affair, and so it can be kept secret. Conversely, in public finance, the government uses public money, for providing public utility services, that is why it cannot be kept secret. Income and Expenditure :- In public finance, the government ascertains the total expenditure to be made on different sectors first and then identifies the sources from which the revenue can be generated to meet those expenses. On the contrary, in the case of private finance, any individual, household, or business enterprise decides the quantum of expenditure to be made, on the basis of his/her income. Present vs. future Income :- The public sector is more involved with future planning and making long-term decisions. The government makes decisions that will bear fruits in the long-term even ten years. The private industry makes financial decisions on projects with a shorter returns waiting time.

13. Ability to Make Huge and Deliberate Changes :- The public finance sector has the ability to make huge decisions on income amount without much consequences. For example, it can effectively and deliberately increase or decrease the income amount instantly. Businesses and individuals can’t make these decisions and implement them immediately. Cash Flow :- Cash is borrowed by both internal and external factors. External borrowing is allowed. Result :- The ultimate winners of the public sector strategy are the people themselves, whereas the beneficiaries of the private finance strategy are the managers, shareholders, or individuals themselves.

14. CONCLUSION Public and Private finance is the pivotal importance of financial gains. Though it is categorized into different areas, the benefit is always to the individuals. The gain from public finance supports people at the same time, the gain from private finance helps individuals only. Efficiency and equity are the main criteria for determining deciding what services and products are or should be provided by government. In public finance, many of the things that society needs would simply not be available or provided to the public. The management of finance in both areas is the prime similarity between the two. The informed process of investment and knowing the expenditure is of high value. Following the value system in maintaining finance gives a good improvement in the longer run. After all, longer the vision, greater the value.

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