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.
15. 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.
