Prof.

Hanumant Yadav

Prof. H. Yadav 1
Indian Public Finance
Public Finance denotes finances ( revenue
and expenditure ) of Government. Receipts
are termed as Revenue of the Govt.
Indian public finances denotes finances of
both Government of India (Central) and all
the states.
Budget of Government reflects finances of
Government.

Prof. H. Yadav 2
Indian Public finance
 Budget of Government finances of three
years e.g. the Budget of Union Government
for the year 2008-09 depicted
(1) Accounts for the year 2006-07 : Actual
revenue and expenditure for the year.
(2) Revised estimate for the year 2007-08 :
Actual revenue and expenditure for first 9
months and estimates for the remaining 3
months.
(3) Budget Estimates for the year 2008-09 :
Estimates revenue and expenditure.
Prof. H. Yadav 3
Revenues of Central Govt.
1. Tax Revenue ( Net of state share )
 Direct Taxes :
(I ) Income Tax on individuals.
(II) Corporate Tax ( Tax on companies income)
 Indirect Taxes
(I) Union Excise Duty (Tax on Industrial
production)
 Customs Duty ( Tax on import and exports)

Prof. H. Yadav 4
Revenue of central Govt.
2. Non Tax Revenue :
I) receipts from services
II) Contribution by public enterprises
III) Small public savings
IV) Internal and external borrowings

Prof. H. Yadav 5
Government Expenditure
Budget depicts public expenditure under followings
headings :
Plan and non-expenditure
Revenue and Capital Expenditure
Expenditure of Central Government and
Transfers to State Government.

Prof. H. Yadav 6
Deficit Financing
 Deficit Financing is financing of the budget
deficits by borrowing from the Reserve
Bank of India.
 There are three major concepts of deficits
1. Revenue deficit = Current revenue
expenditure – current revenue receipts
2. Budgetary Deficit = Total expenditure
(revenue + capital ) – Total receipts.
3. Fiscal Deficit = Revenue Receipts (Tax and
non-tax) + Capital receipts (only recoveries of
loans and other receipts) - Total expenditure.
Prof. H. Yadav 7
Fiscal Policy
Traditionally fiscal policy concerns with the
determination of Government Income and
expenditure.
The objectives of Indian fiscal policy while
determining the Government income and
expenditure is to attain economic stability,
higher economic growth and reduction of
inequality of income and wealth.

Prof. H. Yadav 8
Federal Finance
 The resources from the Centre to the State
Governments are transferred under three
heads :
1. Share in taxes and duties
2. Grants
3. Loans

Prof. H. Yadav 9
 Finance Commission
 The Union Finance Commission is
appointed under article 280 of the
constitution by the President of India with
the task of recommending :
1. The distribution between the Union and the
States of the net proceeds of taxes and
duties which are divided between them and
the allocation between the states.

Prof. H. Yadav 10
Finance Commission
The principles which should govern the grants-
in-aid of the revenue of the states out of the
Consolidated Fund of India
Any other matter referred to the commission by
the President of India,
Government of India 13 Finance Commission
since 1951.

Prof. H. Yadav 11
XII Finance Commission
In pursuance of the provision of Article 280 of the
constitution and of the Finance Commission
(Miscellaneous provisions) Act 1951, the Twelfth
Finance Commission was constituted on 1st Nov. 2002
with Dr. C. Rangarajan, as chairman and three other
members. The commission submitted its report on
30-11-2004 for the period 2005-10.

Prof. H. Yadav 12
Recommendations
A- Restructuring of Public Finance
B- Sharing of Union Tax revenues
C- Local bodies
D- Calamity Relief
E- Grants-in-aid to States
F- Fiscal Reforms facility
G- Debt Relief and corrective measures

Prof. H. Yadav 13
Finance Commission
 Restructuring of Public Finance :
1. Centre and States to improve combined
tax_GDP ratio to 17.6 percent by 2009-10.
2. Combined debt-GDP ratio to be brought down to
75 percent by 2009-10.
3. Fiscal deficit to GDP targets for the Centre and
States to be fixed at 3 %.

Prof. H. Yadav 14
XII FC - Recommendations
 Sharing of Union Taxes
1. The share of states in the net proceeds of
shareable Central taxes fixed at 30.5 %, treating
additional excise duties in lieu of sales tax as
part of the general pool of Central taxes.
2. Share of States to come down to 29.5 percent
when States are allowed to levy sales tax on
sugar, textiles and tobacco.

Prof. H. Yadav 15