1991 Economic Policy Essay

1286 Words 6 Pages
Register to read the introduction… The bill, however, took some time to be passed, while the situation got worse before the bill finally was passed as an act (FRBMA) and implemented in mid 2003. In summary, FRBMA was created to: provide a legal and institutional framework to bring down the fiscal deficit, contain the growth of public debt and stabilize debt as a proportion of GDP, and bind future government to a pre-specified path of fiscal consolidation. The latter was an important tool to overcome the political situation in India that is characterized by instability due to the change in the ruling government party every 5 years. In order to measure the progress and the success of the FRBMA, two major fiscal parameters were targeted: elimination of revenue deficit and progressive reduction of fiscal deficit to less than 2% of GDP within 5 years, and reduction of total liabilities to less than 50% of GDP within 10 years after the implementation of the …show more content…
However, the long-term targets of the FRBMA are yet to be achieved, thus the following challenges and improvements are critical to assure the continuation and sustainability of this positive trend:

I. VAT implementation management

a. Continuing process of VAT implementation to all states

b. Careful management of CST phase out. CST is inconsistent with the concept of VAT, thus it needs to be phased-out. However, the elimination of CST will create revenue loss in the earlier periods, therefore careful management and planning in a form of temporary compensation for the states by the central government needs to be structured.

c. Closer watch on price due to possible tendency to raise price by the producer / seller

II. Accelerated improvements in tax administration to create impersonal, hassle free collecting mechanism and the optimization of the utilization of PAN.

Point I and II above will be major instruments to help reduce the high number of tax evasion in

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