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. Few systems involve in offering clients the money to meet the end objectives of their particular business. It is for a short term benefit for a future gain.
Many of us know these terms at the basic level, but a deeper understanding of such words and expressions they work will allow us to understand the working policies and its practices.
Public vs Private Finance
The difference between public finance and private finance is that public finance deliberately alters and adjusts the income based on the expenses while private finance manipulates the expenses based on future income.
Public finance divisions have government offices and all the agencies that are part of a team and it is managed in the government buildings, and state offices.
On the contrary, personal and business finance are the two important aspects of private finance.
Comparison Table Between Public and Private Finance (in Tabular Form)
|Parameter of Comparison||Public Finance||Private Finance|
|Income and Expenditure ratio||Based on expenditure, income is managed||Based on income, expenditure is managed|
|Cash Flow||Cash is borrowed by both internal and external factors||External borrowing is allowed.|
|Ownership||The whole control of the cash flow procedure||Has no control over the cash flow procedure|
|Objective||To serve people is the motto||To make profits out of the business is the motto|
|Transparency||The process is transparent||The process is not transparent|
What is Public Finance?
Public finance is an economic sector that allocates funds to various public entities based on the set budget and timelines. Public Finance is a sector deals primarily with taxation and expenditure thereof.
It deals with income raised through revenue by the means of taxes and policies. It is utilized to spend on community activities.
In simple words, public finance is the topic of the study of government revenue and expenditure.
Public finance is part of the study of revenue collection and spending in the public interest for the welfare of the government.
Scope of Public Finance
Public Finance can support the government and the people of a nation in various ways. The spectrum of support offered by public financing can be summarized as follows:
- Government Wealth: The treasury of the government is balanced and also kept healthy to avoid and manage an economic disaster.
- Public Loss: Any loss of public lives or properties due to natural calamities are supported by public finance.
- Country’s Debt: Economic debt consolidation and repayment to foreign banks are the main aspects of public finance.
- Economic operations: Infrastructural development of the country is done with the help of public finance.
- Economic stability: The overall stability of the government is held firm with the help of public finance.
- Public finance is a systematic analysis of the reality and values of government revenue and expenditure.
- Scientific approaches stand to research public finances.
- The concepts of public management are empirical.
We can say that the subject of public finance is not static, but a dynamic one that is continually expanding with the change in the concept of a state and the power of the government.
As the economic and social responsibilities of the state are increasing regularly, the methods and techniques of raising tax income, public expenditure are also evolving.
What is Private Finance?
Private finance is money management by an individual or a private entity. It is, indeed, fund optimization over revenue generation and expenditure.
Private finance is, on the whole, the entire life’s financial planning. It includes debt management, pension plans, future investments and so on.
One of the categories of the private sector is business finance. It is the allocation of optimum funds to run a business successfully.
It involves the acquisition of assets and the proper allocation of funds in a manner that maximizes the achievement of the objectives set.
The need-based investment is categorised in this area; short, medium and long term investment. The revenue generated based on the investments made is considered profit if the revenue generated is more than the expenses incurred.
Private financing is also about availing loans and repayment as well. It works both in the personal as well as the corporate front.
Personal Finance can be obtained by an individual to fulfil his/her own needs that would make his life comfortable.
Example: An individual needs to buy a car without taking a step back on his income and saving policy, then he can avail personal finance with options such as EMI. Business Finance can be availed by a company or an organization that needs capital for the company’s growth and development without compromising on the quality.
Main Differences Between Public and Private Finance
- The main difference between Public finance and Private Finance is The public sector is made up of all government agencies, corporations, and local offices. The private sector is made up of companies, individuals, and companies.
- The primary goal of the public sector is to build social gains while the private sector is to make money.
- 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.
- Revenue can be obtained without one’s consent in Public Finance but the same doesn’t work out for Private finance.
- Public finance focus on investments for long terms but Private Finance focus on Short term investments.
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.
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. It is also worth to be mentioning here is, the virtue of patience in expecting returns out the investment is also inevitable. No pain No Gain.