Economics and finance are not synonyms. Finance is about managing funds. The basic craft of finance involves – receiving money, spending money, saving money, keeping money and lending money. The scientific component of the craft of finance deals with the interrelation of the concepts of time, risk and money. These operations involving money are accomplished with the help of financial institutions. The craft is understood better in terms of its three general areas: business finance, public finance and personal finance.
The science of economics studies the production, consumption and distribution of services or goods. It studies how capital, land and labour transform materials into outputs. It analyses how markets demand the outputs and how the economic entities supply them. An economy is a system of producers, consumers, middlemen, labour, investors and others who are seeking some value for their role in the system. An over simplistic measure of such value could be termed as incomes.
The area of economics is usually understood in terms of its two divisions: Microeconomics – usually looking at small markets and the decisions of economic entities in managing inter-form supply and demand relations; and Macroeconomics- looking at the aggregate of markets within a nation and focussing on national variables like national income and output, price inflation and unemployment rate. The science of economics tries to explain how economies work and how do different economies interact.
Though Economics is a social science and not an exact science, its analysis is applied in various fields like finance, business, government, education, law, politics, social institutions and many more. While finance focuses entirely on the maximization of wealth, economics focuses on the optimization of valued social goals including wealth. This way, finance is a subset of economics.
Managing the Economy of the country is a responsibility of the Government. This would be the larger goal and managing of finances of the country would be included within this responsibility.
As organised presently, the Ministry of Finance comprises of five departments; Department of Economic Affairs, Department of Expenditure, Department of Revenue, Department of Financial Services and Department of Investment and Public Asset Management. The later four departments are undoubtedly in the domain of managing the national finances. However, the role of the first one, Department of Economic Affairs (DEA) needs a reassessment.
As per Allocation of Business DEA is tasked with:
- Foreign Exchange Management
- Foreign Aid for Economic Development
- Domestic Finance – currency, securities market
- Budget – preparation, market borrowings,
- Management of the Indian Economic Service
- Economic Advice to Government – on matters of economic management
The responsibility of DEA is predominantly advisory in matters of economy and secondary in terms of line responsibility of economic affairs. The other four departments of the Ministry are handling the line responsibilities of financial affairs.
Government of India to obtain advice on matters related to finance, commerce, trade, economy has an economic advisor designated as the Chief Economic Adviser who heads the Economic Division under the DAE. The Economic Division examines domestic and international economic trends. It undertakes research studies focusing on economic policies and management of the economy. Based on the research it provides advice to the Government of India. Ministry of Finance has an additional adviser designated as the Principal Economic Adviser.
Prime Minister’s Office has an Economic Advisory Council responsible for addressing issues of macroeconomic importance and presenting views thereon to the Prime Minister. Ministry of Commerce & Industry has a full Office of the Economic Advisor (OEA) performing the advisory and statistical record keeping functions. Every Ministry and Department of the Government has some designated Economic Adviser and/or a Financial Adviser.
NITI Aayog is the premier policy ‘Think Tank’ of the Government of India, providing both directional and policy inputs. While designing strategic and long term policies and programmes for the Government of India, NITI Aayog also provides relevant technical advice to the Centre and States.
The economic governance institutions of India include the central government, state and local governments, the Reserve bank of India, and the banking & financial institutional and regulatory framework.
Indian Governance structure is closer to the British Westminster design. In the UK, Chancellor of the Exchequer (Her Majesty’s Treasury) is the government’s economic and finance minister, maintaining control over public spending, setting the direction of the UK’s economic policy and working to achieve strong and sustainable economic growth.
In the US, Secretary of Treasury pursues the mission of maintaining a strong economy and create economic and job opportunities by promoting the conditions that enable economic growth and stability at home and abroad, strengthen national security by combating threats and protecting the integrity of the financial system, and manage the U.S. Government’s finances and resources effectively.
The presentation of the Annual Economic Survey of the country precedes the budget presentation. The Budget of the country is voted upon. Economic Survey or Economic Strategy is not voted upon. Clearly therefore, Economic Affairs of the country have somewhat remained a STAFF function for the Governance Structure of the country and everyone (finally no one) involved with governance is responsible for the economic affairs of the country.
Indian Central Government has 52 ministries as against the US which has 14 and the UK which has only 17. Yet the US and the UK have a clear Allocation of Business of Economic Growth to a Ministry, something that is not clear in the Indian Governance. France has a Ministry for the Economy and Finance and is responsible for economic governance. Turkey also has a Ministry of Economy.
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