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TNPSC Free Notes Economy In English – Federal Finance

இந்தக் கட்டுரையில், TNPSC குரூப் 1, குரூப் 2, குரூப் 2A, குரூப் 4 மாநிலப் போட்டித் தேர்வுகளான TNUSRB, TRB, TET, TNEB போன்றவற்றுக்கான  முறைகள் இலவசக் குறிப்புகளைப் பெறுவீர்கள்.தேர்வுக்கு தயாராவோர் இங்குள்ள பாடக்குறிப்புகளை படித்து பயன்பெற வாழ்த்துகிறோம்.

Federal Finance

Federal finance
 Federal finance refers to the system of assigning the source of revenue to the
Central as well as State Governments for the efficient discharge of their
respective functions.
 It means clear-cut division is made regarding the allocation of resources of
revenue between the central and state authorities.

Division of Powers:
 In our Constitution, there is a clear division of powers so that no one violates its limits
and tries to encroach upon the functions of the other and functions within own sphere
of responsibilities.
 There are three lists enumerated in the Seventh Schedule of constitution.
 They are:
 Union list
 State list
 Concurrent List
Union list
Union List consists of 100 subjects of national importance such as Defence, Railways,
Post and Telegraph, etc.
State List
State List consists of 61 subjects of local interest such as Public Health, Police etc.
Concurrent List
Concurrent List has 52 subjects important to both the Union and the State, such as
Electricity, Trade Union, Economic and Social Planning, etc.

Principles of Federal Finance
In the case of federal system of finance, the following main principles must be applied:
 Principle of Independence
 Principle of Equity
 Principle of Uniformity
 Principle of Adequacy
 Principle of Fiscal Access
 Principle of Integration and coordination
 Principle of Efficiency
 Principle of Administrative Economy
 Principle of Accountability
Principle of Independence
 Under the system of federal finance, a Government should be autonomous and free
about the internal financial matters concerned.
 It means each Government should have separate sources of revenue, authority to levy
taxes, to borrow money and to meet the expenditure. The Government should normally
enjoy autonomy in fiscal matters.
Principle of Equity
From the point of view of equity, the resources should be distributed among the different
states so that each state receives a fair share of revenue.
Principle of Uniformity
 In a federal system, each state should contribute equal tax payments for federal finance.
 But this principle cannot be followed in practice because the taxable capacity of each
unit is not of the same.
Principle of Adequacy of Resources
 The principle of adequacy means that the resources of each Government I.e. Central
and State should be adequate to carry out its functions effectively.
 Here adequacy must be decided with reference to both current as well as future needs.
 Besides, the resources should be elastic in order to meet the growing needs and
unforeseen expenditure like war, floods etc.
Principle of Fiscal Access

 In a federal system, there should be possibility for the Central and State Governments to
develop new source of revenue within their prescribed fields to meet the growing
financial needs.
 In a nutshell, the resources should grow with the increase in the responsibilities of the
Principle of Integration and coordination
 The financial system as a whole should be well integrated.
 There should be perfect coordination among different layers of the financial system of
the country.
 Then only the federal system will survive.
 This should be done in such a way to promote the overall economic development of the
Principle of Efficiency
 The financial system should be well organized and efficiently administered.
 There should be no scope for evasion and fraud.
 No one should be taxed more than once in a year.
 Double taxation should be avoided.
Principle of Administrative Economy
 Economy is the important criterion of any federal financial system.
 That is, the cost of collection should be at the minimum level and the major portion of
revenue should be made available for the other expenditure outlays of the
Principle of Accountability
Each Government should be accountable to its own legislature for its financial decisions i.e.,
the Central to the Parliament and and the State to the Assembly.


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the State to the Assembly.