Introduction to Public Financial Administration

Public Financial Administration deals with the management of public funds—

how revenue is collected, to what extent, and through what means. All
governmental activities are intrinsically connected with financial
administration. When revenue generation falls short of the planned budget, a
financial deficit (ঘাটতি) occurs, making the administration's ability to
function dependent on the treasury. In essence, all state activities are reliant
on the treasury, much like a kingdom depends on its king for sustenance and
direction. As L.D. White states, “All state activities depend on the treasury,
therefore a king.” This indicates that the concept of financial administration
is not entirely new; rather, it is rooted in antiquity, tracing back to the
earliest forms of governance where managing state finances was central to
power and administration.

Finance is often described as the lifeblood of any organization. Whether it's

an office, industry, or enterprise, the presence of money is essential for
acquiring the necessary personnel and materials. In the context of
administration, the effectiveness and efficiency of both operational and
maintenance systems are directly influenced by the strength of the financial
framework. Every administrative action carries financial consequences,
which underscores the vital relationship between finance and public
administration. As famously stated by Lloyd George, “Government is
finance,” highlighting that without a sound financial base, no administrative
machinery can function effectively.

COMPONENTS OF FINANCIAL
ADMINISTRATION

Theorists of public finance have identified three elements of public finance.

a) Public Revenue

b) Public Expenditure

c)Public Debt

Role of Finance Ministry (Simplified)

The Ministry of Finance manages the country's overall financial matters. It
creates fiscal policies that support national growth and development. The
Finance Minister, as the head, presents the annual Union Budget in
Parliament. This ministry, also known as the treasury department, handles
key decisions on spending, revenue, and investment, which impact the
country's economy and global standing.

Nature of Financial Administration:

Science or Art?
The nature of Financial Administration has long been debated among
scholars—whether it should be considered a science, an art, or both. The
discipline incorporates elements of systematic analysis, empirical methods,
and defined principles (characteristic of science), while also involving human
judgment, creativity, and practical application (hallmarks of art).

In addition, there are two broader views that help explain its nature more
deeply:

 Traditional View: Financial administration is seen as a set of activities

related to the collection, management, and distribution of funds for the
functioning and development of public organizations. A financial
administrator plans, organizes, and directs financial operations to
efficiently implement public policy.

 Modern View: This view sees financial administration as a core part of

public management. It’s not just about handling funds but also playing
a social role, such as reducing economic inequalities by transferring
resources from the affluent to the poor (Equalizing Role).

Below are the key arguments that support both perspectives of financial
administration—as a science and an art—along with simple examples to aid
understanding:

🔬 Arguments in Favour of Financial Administration as a Science

1. Systematic Approach
Financial administration is systematic in nature. It examines the cause-
and-effect relationship between revenue and expenditure.
✅ Example: If a government increases taxes, it can predict a rise in
 revenue—this predictable result shows a systematic cause-effect
relationship.

2. Definiteness of Knowledge
It is based on precise and specific knowledge related to government
finance—not on vague assumptions.
✅ Example: It clearly studies how much revenue is collected through
GST, without dealing with unrelated human behavior.

3. Principle-based Discipline
Financial administration formulates tested and accepted principles for
efficient financial functioning.
✅ Example: The "annual budgeting principle" is a widely accepted
practice in public finance systems.

4. Scientific Methods
It uses data and analysis to study four key areas:

o Public Revenue

o Public Expenditure

o Public Debt

o Financial Administration
✅ Example: To manage public debt, experts use interest rate
models and projections, which are scientific tools.

5. Empirical Foundation
Financial administration relies on real-world data and evidence for
policy-making.
✅ Example: Before reducing fuel subsidies, the government studies
past fuel usage data and economic impact reports.

6. Positive and Normative Nature

It can be both descriptive (what is) and prescriptive (what ought to be).
✅ Example: It describes the current tax system (positive) and also
recommends reforms to make it fairer (normative).

🎨 Arguments in Favour of Financial Administration as an Art

1. Application of Knowledge
As Keynes said, “Art is the application of knowledge.” Financial
administration applies theory to solve real-world problems.
 ✅ Example: Using economic theory to design a budget that controls
inflation while promoting job growth.

2. Learned Through Training

Like any art, it can be improved through training and experience.
✅ Example: A newly trained budget officer gets better at estimating
expenses over time through practice.

3. Human-Centered Approach
It focuses on meeting societal needs, keeping people as the priority.
✅ Example: A welfare program is not just about allocating money, but
ensuring it actually helps the poor.

4. Subjectivity and Discretion

Decisions involve personal judgment and are not purely technical.
✅ Example: While setting tax rates, a finance minister may choose to
tax luxury items more—not just based on data, but on social fairness.

✅ Conclusion

In conclusion, financial administration is both a science and an art.

It is scientific in its methods, principles, and reliance on data, and artistic in
applying that knowledge to real-life governance situations with human
judgment. Its traditional focus on fund management and its modern role in
social equity both highlight its evolving and dynamic nature.

Thus, it is rightly called the “Science of Administration”—a field that

blends analysis with creativity. Ongoing research, innovation, and skilled
application are essential for making it more effective in public service.

Core Aspects of Financial Administration

“The four pillars that support sound financial governance”

The government organization that deals with the following four aspects
constitutes the essence of financial administration. In modern times,
these responsibilities are carried out by the Finance Department and its
subordinate agencies.
1️⃣ Revenue Collection – "Fueling the Government Engine"

Tagline: Collecting and preserving public money to fund national goals.

Explanation: This involves the systematic collection, preservation, and
distribution of public funds through tax (like income tax, GST) and non-tax
revenues (like license fees, fines).
✅ Example: The government collects GST from businesses and uses it to fund
infrastructure, health, and education.

2️⃣ Public Expenditure – "Spending with Purpose"

Tagline: Coordinating public revenues and expenditures to serve the people.

Explanation: This refers to the efficient and budgeted allocation of collected
funds to various public services and welfare schemes. It ensures funds are
spent lawfully and effectively.
✅ Example: Budgeted funds are spent on rural employment schemes or
health care programs within the financial year.

3️⃣ Debt Management – "Balancing the Books for Tomorrow"

Tagline: Managing government borrowing to support development without

risking stability.
Explanation: The State sometimes borrows funds (internal or external) to
finance developmental needs. Financial administration ensures responsible
borrowing and timely repayment.
✅ Example: Issuing government bonds to fund metro rail projects, while
ensuring repayment doesn’t hurt the economy.

4️⃣ Financial Administration – "The Brain of Fiscal Governance"

Tagline: Overall planning, control, and supervision of financial activities.

Explanation: It involves budget formulation, resource mobilization, auditing,
accounting, and overall financial control across departments.
✅ Example: The Finance Ministry prepares the Union Budget and ensures
departments follow financial rules and audits.

Scope of Financial Administration

Centuries ago, Kautilya emphasized that the effective management of a
nation is rooted in sound financial administration. This insight remains
relevant today. Governments in modern democracies face a growing number
of responsibilities, all of which require finance for implementation. Hence,
financial administration is essential for achieving efficiency, economy,
and effectiveness in public governance.

With the advent of the information age and globalization, financial

administration has expanded its scope, especially with the growth of e-
commerce. Finance remains the lifeblood of government functions, and
its scope includes the following areas:

1. Public Sector Undertakings (PSUs)

PSUs are government-owned enterprises created to serve public interests

while generating revenue.

 Financial administration ensures that these organizations function

efficiently, remain profitable, and contribute to national welfare.

 General Example: A national airline or oil corporation operated by the

government is monitored for financial discipline to prevent losses and
inefficiencies.

2. Public Revenue

Financial administration oversees the collection of both tax and non-tax

revenues.

 This is essential for financing public services and developmental goals

like infrastructure, health, and education.

 General Example: Revenue is collected through income tax, customs

duties, and licensing fees to support national development programs
and international commitments like the Sustainable Development
Goals (SDGs).

3. Public Expenditure

Governments are responsible for spending revenue on programs and

services that promote development.
  Expenditures must align with the approved budget, and all spending
must have legislative sanction.

 General Example: Funds allocated for rural development or social

welfare programs must be used within the financial year as per the
budget laws.

4. Legislative Control

Public expenditure is subject to oversight by legislative committees to

ensure transparency and accountability.

 These committees review financial records, audit reports, and ensure

compliance with laws.

 General Example: A Public Accounts Committee in the legislature

examines audit findings and holds government departments
accountable for irregularities.

5. Resource Mobilisation

Mobilising resources for development is a critical function of financial

administration.

 This involves improving revenue collection, enhancing the productivity

of public enterprises, and creating a business-friendly environment.

 General Example: Encouraging private sector investment in

infrastructure projects through public-private partnerships (PPPs)
increases resource availability for development.

6. Accounting and Auditing

Accounting ensures that public money is spent for the purposes it was
approved for, and auditing verifies the legality and efficiency of this
spending.

 The auditing process is essential to detect and prevent corruption or

misuse of funds.
  General Example: After each fiscal year, an independent audit
agency checks if educational or healthcare funds were used
appropriately.

7. Ease of Doing Business

Governments must facilitate economic growth by making it easier to start

and operate businesses.

 Financial administration supports this by framing supportive fiscal

policies and simplifying procedures.

 General Example: Simplifying tax registration, digitizing license

approvals, and providing tax incentives for startups improve a
country's ease of doing business ranking.

8. Debt Management

Governments often borrow funds to finance development projects or manage

deficits, and financial administration plays a key role in managing this debt
responsibly.

 This includes monitoring internal and external borrowings, ensuring

timely repayment, and maintaining a sustainable debt-to-GDP ratio.

 General Example: A government issuing sovereign bonds to fund

infrastructure must ensure it does not exceed borrowing limits and can
service the debt without affecting future fiscal stability.

 Conclusion
 Financial administration is a backbone of governance. From collecting revenue and
spending it wisely to ensuring transparency and promoting economic activity, its
functions are diverse and far-reaching. Whether in developed or developing countries, a
strong financial administration system is key to achieving national growth, stability, and
public welfare.

Importance of Financial Administration

Financial administration refers to the management of public funds, including

revenue collection and expenditure. It plays a critical role in ensuring
economic growth, good governance, and inclusive development. Scholars
consider it the backbone of any economy as it supports national stability and
development. Below are the key reasons why financial administration is
essential:

1. Adjustment of Public Expenditure to National Income

The government must align its spending with its income to maintain
financial discipline. Various committees, such as the Resource Division,
monitor and manage this balance to ensure that public expenditure
stays proportionate to national income.
Example: If a country’s income drops, financial administrators might
reduce certain expenditures to avoid borrowing excessively.

2. Administration of Government Machinery

Public servants and government officers need to be paid for the system
to function. Government funds are the fuel for operating public
departments, agencies, and development programs.
Example: Salaries, office maintenance, and running welfare schemes
all depend on proper financial management.

3. Operating System and Policy Implementation

Every decision in government has financial implications. If decisions
are not taken wisely, policy implementation suffers. A welfare state
aims to serve people efficiently, which depends on proper utilization of
human and financial resources.
Example: Launching a health scheme without calculating its cost can
lead to poor execution or failure.

4. Achievement of National Objectives

Financial administration helps implement government targets by
allocating necessary funds. Every policy or plan requires financial
backing to succeed.
Example: To promote digital education, the government must allocate
funds for devices, training, and internet access.

5. Socio-Economic Elevation
Achieving national goals improves public utility and overall quality of
 life. Developmental projects directly help raise people’s living
standards.
Example: Better roads, schools, and hospitals funded by public money
contribute to socioeconomic upliftment.

6. Reduction of Wastage
Financial administration uses tools and checks to prevent resource
misuse. Ensuring proper allocation and utilization minimizes
unnecessary spending.
Example: Monitoring government projects to avoid delays and cost
overruns.

7. Resource Generation
Effective financial administration ensures the generation of both
internal (taxes, savings) and external (foreign aid, investments)
resources.
Example: Encouraging savings and collecting taxes efficiently
increases the government’s spending power.

8. Public Debt and Borrowing

Borrowing is sometimes necessary, but it must be managed carefully.
Financial administration ensures that public debt remains within limits
and does not harm the economy.
Example: India borrows money from international agencies but must
ensure repayment doesn’t strain future budgets.

9. Fiscal Policy Management

Fiscal policy is used to control inflation, reduce income inequality,
generate employment, attract foreign investment, and balance
international payments. Financial administration plays a key role in
framing and implementing this policy.
Example: Offering tax cuts to small businesses to boost job creation in
underdeveloped regions.
Principles of Financial Administration
Financial administration mainly focuses on two key goals:

 Economic Growth

 Inclusive Development

Economic growth means making the country richer and stronger, while
inclusive development ensures that benefits reach all people, including the
poor and backward sections.
To achieve these goals properly, financial administration follows several
important principles:

1. Unity of Organisation

For financial policies to succeed, different government departments must

work together in a coordinated way. Duplication of work and wastage of
resources should be avoided.

 Example: In Bangladesh, during the construction of the Padma Bridge,

different ministries (Roads, Finance, Environment) worked together to
complete the project efficiently.

2. Legislative Control

The Parliament controls financial activities by passing acts like the Finance
Act, the Budget, and by monitoring through audit bodies like the Comptroller
and Auditor General (CAG).

 Example: In Bangladesh, the Parliament reviews and approves the

Annual Budget every year before the government can spend public
money.

3. Political Direction

Financial administration must follow the political goals of the country and
address the real problems of the people, like poverty, unemployment, and
inequality.
  Example: The “Ashrayan Project” in Bangladesh provides free homes
to the homeless, aligning financial activities with political promises for
inclusive growth.

4. The Principle of Correspondence

There should be a match between what the government wants to achieve

(objectives) and how the administration works (functions). Officials must be
trained to handle new technology and challenges.

 Example: Bangladesh is training government employees in digital

systems under the "Digital Bangladesh" vision to match objectives with
modern needs.

5. Primacy of Public Interest, Public Choice, and Public Policy

The focus of all financial decisions must be the public’s welfare, not personal
gain of politicians or officials. People's needs must come first in
policymaking.

 Example: The government of Bangladesh reduced fertilizer prices to

support farmers, prioritizing public interest over profit.

6. Stability and Balance

The government must ensure a stable and balanced system of human

resources to effectively carry out its plans.

 Example: The regular recruitment of civil servants through BPSC

(Bangladesh Public Service Commission) ensures stability in
government workforces.

7. Awareness and Accountability

In a democracy, the real power lies with the people. Citizens must stay alert,
question government actions, and hold them accountable.

 Example: In Bangladesh, media reports and social platforms often

expose misuse of public funds, forcing action and accountability.
8. Flexibility

Financial administration must be flexible to adjust policies and projects as

per changing needs of society and economy.

 Example: During the COVID-19 pandemic, Bangladesh quickly

reallocated budget funds to healthcare and relief, showing financial
flexibility.

Summary Line:
Following these principles ensures that financial administration strengthens
the economy while making sure everyone in the country benefits fairly.