The mainstream economic theory completely ignored the analysis of microeconomic arrangement in the traditional societies of low income countries. There has been a change in attitude of economists beginning from the 1970s. One of the aspect that has generated the interest of academic economist in the last three decades or so is the informal credit arrangement. This essay reviews the theoretical dimension of debate in informal credit that surface during the 1970s and 1980s. This short essay captures the major tenets of the debate. The paper begins with a brief introduction of the subject matter. The whole controversy is then divided into the main stream and the alternative approaches. Both of these approaches are analysed in terms of: (i) credit-land, (ii) credit-labour, and (iii) credit output interlinkages. The paper ends with a very short description of the treatment of interlinked credit in Nepal.

Nepal and India are contiguous countries having a pegged exchange rate arrangement existing for forty years with virtually no restrictions on labor or capital mobility. However, empirical analysis suggest the levels of the Nepalese and Indian monetary base do not share a long term relationship. Conditioning the monetary policy variables by output shocks (i.e. by their respective economic structures) now show them to be cointegrated. This implies that a long-term monetary analysis using unconditional variables may be misleading.

Developing countries raise part of the vast financial resources required for their development needs from tax. considering the limited scope of direct tax, revenue largely depends on indirect taxes like custom duty, sales tax and excise duty. Contribution of indirect taxes to total revenue has an erratic trend. Custom duty constitutes major source hence the revenue policy amounts virtually to import based. The distribution of incidence of indirect taxes has been found regressive. Buoyancy of components indirect taxes such as customs and sales tax is found greater than unity while that of excise duty is less than unity. In terms of GDP sales tax is found more buoyant.

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