Page 148 - DMGT401Business Environment

Unit 6: Fiscal Policy

it should be noted that as taxes still forms a barrier to inter-state trading in order to attain a Notes
secured market for the activities related to services and goods more reform is needed. Some of
the reforms that can be introduced for a better indirect taxation system in India are:
1. The serialized set of Indirect Taxes so far activated at the central and state levels should be
amalgamated and treated as a single tax.

2. The integrated Indirect Tax should be neutral at all levels such that chances of fraudulence
would be minimized.
3. The Central Sales Tax, which obstructs easy trading between different states, is being
under the process of termination that would help to abolish the control measures on the
inter-state trade.

By the year 2010 the Indian government has planned to activate a goods and services tax neutral
at all levels in order to fulfill these objectives. The government can undertake either an
introduction of a national VAT or a system, which would permit both a state VAT, or a central
VAT. Along with this if the government also can incorporate a central VAT that can be rebated,
on the trade across the boundary lines, then there would be minimum chances of fraudulence.

Case Study India at the Time of Global Crisis

his morning, I had a meeting with the chiefs of major banks where we announced
the monetary policy of the Reserve Bank for the remaining period of 2009-10 in the
Tlight of the macroeconomic developments so far. The meeting also provided a
valuable opportunity for the Reserve Bank and the commercial banks to understand and
appreciate each other's perspectives.
Bankers generally welcomed the Reserve Bank's policy stance. They felt that the status
quo on policy rates would anchor interest rate expectations that could spur investment
demand. They indicated that they are seeing signs of revival in the domestic economy and
expect credit demand to pick up in the second half of the year. In this context, I emphasised
the need to increase the flow of credit, particularly to agriculture and micro, small and
medium enterprises. Banks were concerned that their liability structure is getting shorter
with the reduction in the term structure of deposits, while the asset structure is getting
elongated on account of the increasing share of long-term loans, particularly infrastructure.
Several banks also indicated that the share of current and savings (CASA) deposits has
been declining, which would put pressure on their Net Interest Margins (NIM). As regards
credit quality, banks were of the view that Non-performing Assets (NPAs) are expected to
increase, particularly, in the unsecured segments, although they will remain manageable.
Going forward, public sector banks emphasised the need for raising capital as risk-weighted
assets expand in their asset portfolio.
Global Economy
The global economy is showing incipient signs of stabilisation, albeit not recovery. The
pace of decline in economic activity in several major advanced economies has slowed,
frozen credit markets have thawed and equity markets have begun to recover. Recent
months have also witnessed industrial activity reviving in a number of emerging market
economies. Notwithstanding some positive signs, the path and the time horizon for global
recovery remain uncertain in the light of subdued consumption demand, increased
unemployment levels and in anticipation of further contraction in global trade and private
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