The impact of revised regulation regarding cash reserve requirement and
statutory liquidity requirement is expected to be marginal in the long run. While the
dearth of quality borrowers continues, declining yield on government securities will
continue to adversely affect the earnings of financial institutions.
The new Trade Policy is aimed at increasing exports through
diversification and reducing trade deficit. At the same time it offers additional
incentives for the exporters of traditional products and re-exporters.
Tax on Reserves
According to new finance bill, the reserves of corporates, if exceed 50
per cent of paid-up capital, will be taxed. While the law is highly ambiguous, there is no
logic of imposing tax on reserves as the government already collects exorbitantly high
corporate tax on the earnings.
The cotton ginners are looking at falling world
prices with concern. They are fearing a market crash. The Trade Policy for 1999-2000 in
which a number of demands of the textile sector have been accepted and falling cotton
prices, however, have been taken as positive developments by the textile industry.