importance of Public Finance Use of Public Finance How public finance is useful

2.  Governments do not only confine
themselves to law and order situation but
they also actively intervene in economic
matters to justify themselves as, ‘Welfare
States’. The Governments require money
to spend it on the welfare of citizens.
Hence, the importance of public finance
has increased greatly in recent years.

3.  (1) Protection to Infant Industries. The
Government of an underdeveloped country
protects its infant Industries against foreign
competition through various public finance
activities like imposition of heavy tariff duties
on imports, putting restrictions on imports,
giving subsidies to keep the cost low etc.
The objective of such operations is to enable
these industries to stand on their legs
against foreign competition.

4.  Public finance renders valuable help in the
planned economic development of the
country. The planning authorities fix the
priorities of expenditure for the plan period.
The Government raises the necessary funds
to implement the plans through direct and
indirect taxation. The government takes
necessary action to achieve the plan
objectives, through fiscal measures.

5.  Public finance regulates the consumption
habits of the people. It imposes taxes on items
of consumption, the use of which is to be
discouraged such as wine, cigarettes, tobacco
and bidi, and allows concessions and rebates in
taxes if it likes to encourage the consumption of
any commodity. In practice, it can be seen that
through tax-policy, Government is able to
encourage or discourage the demand on
various commodities.

6.  Public finance also plays a vital role in reducing
social inequalities, through its fiscal policies. The
Government can levy Heavy taxes on the richer
sections of the society because they have capacity
to pay, and spend the income so received on
providing various facilities to poorer sections of the
society such as providing free medical facilities,
educational facilities, cheap housing, Cheap rations
through fair price shops etc. Thus. on the one hand
it reduces the purchasing power of the richer
sections and on the other hand, increases the
purchasing power of the poor sections of the
society.

7.  The Government always restricts the imports
only to the essential items: hence imports of
non- essential items are taxed heavily. On the
other hand, the Government encourages the
exports of its surplus production. It reduces the
burden on export items and also supports them
with subsidies and grants. These operations
restricting imports and encouraging exports of
the Government maintain the balance of trade.

8.  Public finance helps industrial development
of the country as follows-
(i) Governments grant Subsidies and grants to
various industries these days to enable them
to increase the production of different
essential items. These subsidies and grants
have special place in the Government
expenditure of underdeveloped and
backward countries.

9.  (ii) Public finance induces the investment
during the time of depression through its
taxation policy by allowing tax-rebates for
investments in desired direction. Through
tax-policies, the Government can also
discourage the investment in certain
industries producing non-essential or harmful
items of consumption.

10.  (iv) To strengthen the economic development
in developing countries, it is essential to give
highest priority to capital formation because
industrial development cannot be imagined
without capital. For this purpose, there must
be policies in the store of the government to
encourage people to save more by cutting
their wasteful expenditure.

11.  v) Industrial development of a country will
bring in more employment opportunities to
people especially in under-developed
countries. The government may also provide
more jobs through the deficit budget which is
an indispensable measure to increase the
volume of employment during depression.

12.  Thus, it is evident that the government of a country
can push up the industrial and economic
development of the country, provide more
employment opportunities, encourage investments
and savings in the desired direction and increase
social benefits through public expenditure. On the
reverse, it can have an influential check over
infrastructure economic and social activities,
mitigate the inflationary and deflationary trends in
the economy regulates the consumption and
production of unwanted items, and can regulate the
flow of imports to protect its own industries and so
on. It therefore, affects the overall economic and
social system of the country. Public financial
management systems are now well defined.
