Financial Administration

1.2 MEANING AND NATURE OF FINANCIAL

ADMINISTRATION

NOTES Administration and finance are two inseparable items. All administrative activities
involve expenditure of some kind. Without finance, administrative machinery
becomes inoperative. On the other hand, finance too has to depend on
administration. To be specific, all financial transactions and expenditure, in order
to be documented properly, should be administered or executed by efficient means.
The term financial administration is used in a broad sense to include all expenses
involved in collecting, budgeting, appropriating and expending public money. It
also includes auditing income, expenditures, receipts and disbursements and
accounting for funds needed to be expended on public services. Thus, financial
administration touches the very basic of socio-economic welfare of the people.
Financial administration is a dynamic process that involves an on-going chain of
operations, performed by the following agencies:
(i) The Executive (primarily the Finance Ministry), which needs funds
(ii) The Legislature, which alone can grant funds
(iii) The Finance Commission
(iv) The Indian Audit and Accounts Department
(v) The Parliamentary Committees
Administration and finance are mutually dependent on each other. For performing
administrative activities, we need finance, whereas, for proper documentation of
all financial transactions and expenditures we need proper administration. So we
use the term financial administration, when we talk about all expenses related to
collecting, budgeting, appropriating and expending public money. It is also
responsible for auditing income, expenditure, receipts and accounts of funds that
are need to be expended on public services. It plays an important role in the
socio-economic welfare of the people.
The Executive: Role of the President and Finance Ministry
Being the chief executive of the Indian union, the executive powers of the central
government have been vested in the President, to be exercised by him or her
either directly or through officers subordinate to him or her, in accordance with the
Constitution (Article 53).
 The President has control over the purse of the nation. The annual budget
has to be places before the President before being introduced in the
Parliament.
 The President has been authorized by Article 280 to appoint a Finance
Commission consisting of a chairman and other members. The members of
the Finance Commission are elected after every five years, or earlier, if
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  The President has also been given control over the Contingency Fund of Financial Administration

India. He or she can advance money from this fund to the Government of
India for meeting unexpected expenditures.
 Certain money bills (Article 110) and bills affecting the taxation in which
NOTES
states are interested (Article 274) are reserved by the state Governors for
the approval by the President.
The Cabinet controls the financial policy of the Union executive. It is the
Finance Minister who submits the budget to the Parliament. The Parliament
approves the budget-expenditure and revenue items in its original form with the
support of a subservient majority.
Finance Ministry
The Finance Ministry is an important ministry within the Government of India. It is
the leading state administration institution in the field of finances. It develops financial
policy, coordinates and organizes its implementation, as well as performs other
functions stated in the external regulatory enactments.
Taxation, financial legislation, financial institutions, capital
markets, centre and state finances, and the Union Budget are the primary concerns
of this ministry.
The functions of the Finance Ministry may be summarized as follows:
 It develops and implements the following policies:
o State budget and finance management policy
o Customs policy
o Tax and duties system policy
o State and local governments procurements policy
o State aid control policy
o Internal audit policy
o Policy of remuneration for public sector employees
o Policies in accountancy fields
o Ensures observance of common principles in budget administration.
 It provides methodological assistance regarding budget preparation and
implementation issues.
 At the state budget planning stage, it performs the following functions:
o Prepares the state budget sections on subsidies and earmarked grants
for local governments
o Evaluates correspondence of the approved budgets to the regulatory
requirements
o Analyses performance indicators of local governments

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Financial Administration o Performs calculations regarding equalization of local government
finances
o Prepares draft protocol of agreements and disputes between the
Cabinet of Ministers and Latvian Association of Local and Regional
NOTES
Governments
 It provides control numbers regarding State Investment Program and total
state budget investment amount. It evaluates financially economical
justification of these projects, as well as monitors utilization of state budget
resources during the implementation of the projects.
 It develops long-term, short-term and medium-term macroeconomic
development scenarios and provides fiscal policy justification for the state
budget forecasts.
 It reviews, adds and specifies customs tariff objects, arranges and updates
the Harmonized Commodity Description and Coding System, Latvian
Combined Nomenclature and TARIC Classificatory.
 It develops, implements, coordinates, maintains and updates unified
accounting system of remunerations for employees of institutions financed
from the state budget.
 It coordinates attraction of foreign financial assistance resources and
monitors their utilization.
The Legislature
India has a parliamentary form of government. The Indian Parliament or the Union
Legislature, the supreme legislative body in the country, comprises two Houses—
Lok Sabha (House of the People) and Rajya Sabha (Council of States). The main
function of both the Houses is to pass laws. The law proposal originates in the
Parliament in the form of a bill. There are four types of bills that come up before
the Parliament, namely ordinary or non-money bill, money bill, constitution
amendment bill and budget. Of these four types of bills, money bill and budget
pertain to financial administration.
Article 110 clearly defines what constitutes a ‘money bill’. The Speaker of
the Lok Sabha certifies whether a bill is a ‘money bill’ or a non-money bill. Money
bill can be introduced, only along with the prior recommendation of the President,
in the Lok Sabha and not in the Rajya Sabha. The Rajya Sabha cannot reject the
money bill. It can only make recommendations.
Every year, the budget is presented before the Lok Sabha. The Finance
Ministry prepares the budget. The budget is presented in two parts: (a) Railway
Budget and (b) General Budget. Railway budget is presented by the Railway
Minister while the general budget is presented by the Finance Minister. The budget
passes through various stages.

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 The discussion on budget in Parliament is done through two stages: (a) Financial Administration

General discussion and (b) demands for grants for each ministry. In the ‘general
discussion’, the general economic policy is discussed and there is no detailed
discussion on taxation and expenditures in both the Houses of the Parliament. In
these discussions, both Houses express their opinion regarding the economic policy NOTES
of the government and a general appraisal of the economic policy is made. Here,
it should be noted that the Rajya Sabha also discusses the budget; however, it
cannot go beyond general discussion.
The next stage is the appropriation bill, which incorporates all the demands
for grants voted by the Lok Sabha and the expenditures charged on the
Consolidated Fund of India. The bill seeks the legal authority to be given to
government to appropriate expenditure from and out of the Consolidated Fund of
India.
Finance Bill
It contains government proposals for raising revenues. The move to introduce a
finance bill cannot be opposed and it is forthwith put to vote. This bill has to be
considered and passed by the Parliament and assented to by the President within
75 days after it is introduced. Passing of the finance bill is the final act of Parliament’s
financial procedure.
Vote on Account
Sometimes, the Lok Sabha passes the Vote on Account. A vote on Account stays
valid for two months, when the passage of budget is delayed for some reason.
During an election year, it is valid for 3–4 months. As a convention, vote on account
is treated as a formality and passed by the Lok Sabha without discussion. Thus,
the House is able to consider the Budget at a convenient time.
1.2.1 Significance of Financial Administration
The term ‘financial administration’ refers to some sort of accountability, regularity
and well- coordinated method of revenue and expenditure. Every act of government
in regard to the collection of revenue and expenditure of the same should essentially
conform to democratic principles and methods. Hence the financial administration
has a special meaning and reference in democracy. The government cannot do
anything in monetary things disregarding the written rules and procedures.
The financial administration is very significant aspect of public administration
because the running or management of administration is not possible without money
or finance and for that reason the financial administration occupies the centre of
public administration. The Ministry of Finance is an important ministry within the
Government of India. It concerns itself with taxation, financial legislation, financial
institutions, capital markets, centre and state finances, and the Union Budget. The
Union Finance Ministry of India comprises five departments— Department of

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Financial Administration Economic Affairs, Department of Expenditure, Department of Revenue, Department
of Financial Services and Department of Disinvestments. Comptroller and Auditor
General of India controls the entire financial system of the country — at the Union
and as well at the state levels (Art. 148). He/she is the guardian of the purse and
NOTES it is his/her duty to see that not a single paisa is spent from the Consolidated Fund
of India or of a State without the authority of the appropriate legislature.
In a democratic country like India, there is universal acceptance of the notion
of ‘parliamentary’ control over public purse’. The people, through their
representatives have the power to control where public funds are spent. Thus,
financial administration is an instrument of ‘modern governments for making
“popular sovereignty” a social reality.
The concept of planned development has enabled public administrators to
play an active and dynamic role in the formulation and implementation of
development schemes and projects. The time and cost of implementing these
projects have become critically important. The accent of financial administration
has shifted from one of controlling the disbursement of funds to one of management
of various development projects and programmes. The rise of performance
budgeting and other related budgetary innovations represent remarkable
achievements of financial administration in meeting this challenge. From the 1980
onwards, resource crunch has become a very serious problem. While there is a
tremendous pressure on the governments to increase their expenditure outlays to
meet the ever expanding ambitions and demands of the people, the taxpayers are
unable or unwilling to bear additional tax burdens. In this dilemma, a need has
arisen for a careful prioritisation of public expenditure. Hence, a study of financial
administration and management which are a part of public administration has
become important to seek out ways for eliminating unwanted expenditure and
ensuring optimisation of output on a limited resource base. Zero based budgeting
is an attempt in this direction. To sum up, financial administration is playing a
dominant role in modern times.

Check Your Progress

1. What are the five agencies responsible for financial administration in India?
2. Who appoints the chairman of the Finance Commission?
3. What are the primary concerns of the Finance Ministry?
4. List the four types of bills presented before the parliament.
5. What are the two parts in which a budget used to be presented?
6. Why is financial administration considered the centre of public
administration?
7. Name the five departments that are part of the Union Finance Ministry of
India.
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