Economy Terms for UPSC -Part III

Economy Terms for UPSC -Part I


  • They are temporary loan facilities provided by RBI to the government to enable it to meet temporary mismatches between revenue and expenditure.
  • The government makes an interest payment to the central bank when it borrows money.
  • The rate of interest is the same as the repo rate, while the tenure is three months.
  • The limits for WMA are mutually decided by the RBI and the Government of India.


  • It is the minimum interest rate that a bank can lend at.
  • It is a tenor-linked internal benchmark, which means the rate is determined internally by the bank depending on the period left for the repayment of a loan.
  • MCLR is closely linked to the actual deposit rates and is calculated based on four components: the marginal cost of funds, negative carry on account of cash reserve ratio, operating costs and tenor premium.
  • Genesis of MCLR:
    • The Reserve Bank of India introduced the MCLR methodology for fixing interest rates from 1 April 2016.
    • It replaced the base rate structure, which had been in place since July 2010.


  • The LTRO is a tool under which the central bank provides one-year to three-year money to banks at the prevailing repo rate, accepting government securities with matching or higher tenure as the collateral.
  • How is it different from LAF and MSF?
    • While the RBI’s current windows of liquidity adjustment facility (LAF) and marginal standing facility (MSF) offer banks money for their immediate needs ranging from 1-28 days, the LTRO supplies them with liquidity for their 1- to 3-year needs.
    • LTRO operations are intended to prevent short-term interest rates in the market from drifting a long way away from the policy rate, which is the repo rate.
  • Why is it important?
    • As banks get long-term funds at lower rates, their cost of funds falls.
    • In turn, they reduce interest rates for borrowers.
    • LTRO helped RBI ensure that banks reduce their marginal cost of funds-based lending rate, without reducing policy rates.
    • LTRO also showed the market that RBI will not only rely on revising repo rates and conducting open
      market operations for its monetary policy, but also use new tools to achieve its intended objectives.


  • Repo Rate, or repurchase rate, is the key monetary policy rate of interest at which the central bank or the Reserve Bank of India (RBI) lends short term money to banks, essentially to control credit availability, inflation, and the economic growth.
  • Repo Rate in India is the primary tool in the RBI’s Monetary and Credit Policy.
  • Other policy rates, such as Reverse Repo Rate and Marginal Standing Facility Rate, are often directly linked with the Repo Rate of RBI.
  • The RBI Governor presides over the meeting of the Monetary Policy Committee (MPC), wherein the Repo Rate for the following term or the current repo rate is decided.
  • In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank.
  • This ultimately reduces the money supply in the economy and thus helps in arresting inflation.


  • Reverse Repo Rate is actually the opposite of Repo Rate.
  • The RBI borrows money at this rate from the banks for the short term.
  • In other words, the banks park their excess funds with the central bank at this rate, often, for one day.
  • The banks earn an interest rate on government securities purchased from the RBI for the given period.
  • The Repo Rate always stands higher than the Reverse Repo Rate, and the spread between the two is RBI’s income.
  • An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant.
  • An increase in reverse repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply of money in the market.


  • Apart from Reverse Repo Rate, some of the other types of lending and borrowing under repo rate are:
  • Overnight Repo:A Repo transaction for a day is known as an Overnight Repo. In such an agreement, banks sell securities to the RBI for money, and repurchases those the following day, thus, returning the money to the central bank.
  • Term Repo:Term Repo includes a period of more than one day. The usual duration of term repo or variable rate term repo is 7 days, 14 days and 28 days. The RBI normally announces the term repo auction as and when there is a need of funds by the banks for a duration of more than a day.


  • Commercial paper, also called CP, is a short-term debt instrument issued by companies to raise funds generally for a time period up to one year.
  • It is an unsecured money market instrument issued in the form of a promissory note and was introduced in India for the first time in 1990.
  • CPs have a minimum maturity of seven days and a maximum of up to one year from the date of issue.
  • However, the maturity date of the instrument should typically not go beyond the date up to which the credit rating of the issuer is valid.
  • They can be issued in denominations of Rs 5 lakh or multiples thereof.
  • Since such instruments are not backed by collateral, only firms with high ratings from a recognised credit rating agency can sell such commercial papers at a reasonable price.
  • CPs are usually sold at a discount to their face value, and carry higher interest rates than bonds.


  • A futures contract is a standard contract to buy or sell a specific commodity of standardized quality at a certain date in the future.
  • For example, if oil producers want to sell oil in the future, they can lock in their desired price by selling a futures contract today.
  • Alternatively, if consumers need to buy crude oil in the future, they can guarantee the price they will pay at a future date by buying a futures contract.


  • SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
  • The value of the SDR is calculated from a weighted basket of 5 major currencies, including the S. dollar, the Euro, Japanese yen, Chinese Renminbi, and British pound.
  • Technically, the SDR is neither a currency nor a claim on the IMF Instead, it is a potential claim against the currencies of IMF members.
  • SDR serves as the unit of account of the IMF.
  • SDRs can only be held by IMF member countries and not by individuals, investment companies, or corporations.
  • SDRs are used by the IMF to make emergency loans and are used by developing nations to shore up their currency reserves without the need to borrow at high-interest rates or run current account surpluses at the detriment of economic growth.


  • Open Market Sale Scheme (OMSS) refers to selling of food grains by Government / Government agencies at predetermined prices in the open market from time to time
  • The scheme aims to enhance the supply of grains especially during the lean season and thereby to moderate the general open market prices especially in the deficit regions.


  • These bonds are debt instruments issued by financial, non-financial or public entities where the proceeds are ‘ear-marked’ for use towards financing ‘green’ projects. India’s First Green Bond was issued by Yes Bank Ltd in 2015.
  • India’s first listed Green Bond on ‘India INX’ issued by Indian Railway Finance Corporation.


  • The sovereign gold bond was introduced by the Government in 2015.
  • Government introduced these bonds to help reduce India’s over dependence on gold imports.
  • The move was also aimed at changing the habits of Indians from saving in physical form of gold to a paper form with Sovereign backing.
  • The bonds will be restricted for sale to resident Indian entities, including individuals, HUFs, trusts, universities and charitable institutions.
  • The bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
  • The tenor will be for a period of 8 years with exit option from the 5th year to be exercised on the interest payment dates.
  • The minimum permissible investment limit will be 1 gram of gold, while the maximum limit will be 4 kg for individual, 4 kg for HUF and 20 kg for trusts and similar entities per fiscal (April-March) notified by the government from time to time.


  • The RBI has a government-constituted Monetary Policy Committee (MPC) which is tasked with framing monetary policy using tools like the repo rate, reverse repo rate, bank rate, cash reserve ratio (CRR).
  • It has been instituted by the Central Government of India under Section 45ZB of the RBI Act that was amended in 1934.
  • The MPC is entrusted with the responsibility of deciding the different policy rates including MSF, Repo Rate, Reverse Repo Rate, and Liquidity Adjustment Facility.
  • The committee will have six members. Of the six members, the government will nominate three. No government official will be nominated to the MPC.
  • Monetary Policy Instruments
    • Monetary policy instruments are of two types namely qualitative instruments and quantitative instruments.
    • The list of quantitative instruments includes Open Market Operations, Bank Rate, Repo Rate, Reverse Repo Rate, Cash Reserve Ratio, Statutory Liquidity Ratio, Marginal standing facility and Liquidity Adjustment Facility (LAF).
    • Qualitative Instruments refer to direct action, change in the margin money and moral suasion.


  • Business Correspondents are retail agents engaged by banks for providing banking services at locations other than a bank branch/ATM.
  • Banks are required to take full responsibility for the acts of omission and commission of the BCs that they engage and have, therefore, to ensure thorough due diligence and additional safeguards for minimizing the agency risk.
  • As per the RBI guidelines the products provided by BCs are: Small Savings Accounts, Fixed Deposit and Recurring Deposit with low minimum deposits, Remittance to any BC customer, Micro Credit and General Insurance.
  • BCs have to do a variety of functions viz, identification of borrowers, collection of small value deposit, disbursal of small value credit, recovery of principal / collection of interest, sale of micro insurance/ mutual fund products/ pension products/ other third party products and receipt and delivery of small value remittances/ other payment instruments, creating awareness about savings and other products, education and advice on managing money and debt counseling, etc.
  • Who can be engaged as BCs?- The banks may engage the following individuals/entities as BC:
    1. Individuals like retired bank employees, retired teachers, retired government employees and ex-servicemen, individual owners of kirana / medical /Fair Price shops, individual Public Call Office (PCO) operators, agents of Small Savings schemes of Government of India/Insurance Companies, individuals who own Petrol Pumps, authorized functionaries of well run Self Help Groups (SHGs) which are linked to banks, any other individual including those operating Common Service Centres (CSCs).
    2. NGOs/ MFIs set up under Societies/ Trust Acts and Section 25 Companies.
    3. Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/ Cooperative Societies Acts of States/Multi State Cooperative Societies Act.
    4. Post Offices.
    5. Companies registered under the Indian Companies Act, 1956 with large and widespread retail outlets, excluding Non Banking Financial Companies (NBFCs).


  • Round tripping refers to money that leaves the country though various channels and makes its way back into the country often as foreign investment.
  • This mostly involves black money and is allegedly often used for stock price manipulation.
  • Round tripping is often done through a series of transactions that don’t have any substantial commercial purposes, which makes it fall within the trappings of GAAR.


  • According to the RBI, balance of payment is a statistical statement that shows
    • The transaction in goods, services and income between an economy and the rest of the world,
    • Changes of ownership and other changes in that economy’s monetary gold, special drawing rights (SDRs), and financial claims on and liabilities to the rest of the world, and
    • Unrequited transfers.
  • The transactions in BOP are categorised in
    1. a) Current account showing export and import of visibles (also called merchandise) and invisibles (also called non-merchandise). Invisibles take into account services, transfers and income.
    2. b) Capital account showing a capital expenditure and income for a country. It gives a summary of the net flow of both private and public investment into an economy. External commercial borrowing (ECB), foreign direct investment, foreign portfolio investment, etc form a part of capital account.
    3. c) Errors and omissions: Sometimes the balance of payment does not balance. This imbalance is shown in the BOP as errors and omissions. BOP is compiled using the double entry book keeping system consisting assets and liabilities.


  • Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities.
  • It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process.
  • The capital adequacy ratio, also known as capital-to-risk weighted assets ratio (CRAR), is used to protect depositors and promote the stability and efficiency of financial systems around the world.


  • Risk-weighted assets are used to determine the minimum amount of capital that must be held by banks and other institutions to reduce the risk of insolvency.
  • The capital requirementis based on a risk assessment for each type of bank asset.
  • For example, a loan that is secured by a letter of creditis considered to be riskier and requires more capital than a mortgage loan that is secured with collateral.


  • The gain or profit from the sale of assets is classified as a capital gain.
  • STCG or Short-Term Capital Gains Tax is the tax levied on profits generated from the sale of an asset which is held for a government-defined short period is called short-term capital gains tax.
  • The short-term period differs for various items.
  • If an asset is held for less than 36 months, any gain arising from selling it is treated as a short-term capital gain (STCG).
  • If an asset is held for 36 months or more, any gain arising from selling it is treated as a ‘long-term’ capital gain (LTCG).


  • Customs Duty is levied when goods are transported across borders between countries.
  • It is the tax that governments impose on export and import of goods.
  • Customs Duty is beneficial for many reasons.
  • For instance, it ensures a country’s economic stability, jobs, environment, among others.
  • It regulates the movement of goods in and out of the country.
  • It keeps a check on restricted items


  • Securities Transaction Tax, also referred to as STT, is a tax that is levied on the purchase or sale of shares and other trade-able securities of the companies listed on the stock exchange.
  • Governed under the Securities Transaction Tax Act, or the STT Act, the tax is levied on specifically listed taxable securities including equity, derivatives, units of equity-oriented mutual fund.
  • Introduced in Union Budget 2004, this transaction tax was imposed in lieu of lower tax on short-term capital gain (LTCG) and ‘nil’ long-term capital gain (LTCG) tax on equities.
  • However, in 2013, the tax rate was cut, following years of protests by brokers as well as the trading community.


  • Poverty defined with respect to an absolute material standard of living.
  • Someone is absolutely poor if their income does not allow them to consume enough to purchase a minimum bundle of consumer goods and services (including shelter, food and clothing).
  • An alternative approach is to measure relative poverty.


  • Implemented by National Payments Corporation of India (NPCI)
  • Used by the government departments and agencies for electronic transfer of benefits and subsidiaries under Direct Benefit Transfer (DBT) scheme
  • Uses Aadhaar numbers issued by UIDAI & IIN (Institution Identification Number) issued by NPCI.
  • IIN is a unique 6 digit number issued by NPCI to every APB System participating bank and is used to uniquely identify a bank to which the APB transaction has to be routed in the Aadhaar Payment Bridge (APB) System.


  • An ad valorem tax is a tax based on the assessed value of an item, such as real estate or personal property.
  • The most common ad valorem taxes are property taxes levied on real estate.
  • However, ad valorem taxes may also extend to a number of tax applications, such as import duty taxes on goods from abroad.
  • Ad valorem taxes are generally levied on both real property (land, buildings and other structures) and major personal property, such as a car or boat. 


  • Agricultural Census, which is conducted every five years in India.
  • It is the largest countrywide statistical operation undertaken by Ministry of Agriculture, for collection of data on structure of operational holdings by different size classes and social groups.
  • Primary (fresh data) and secondary (already published) data on structure of Indian agriculture are collected under this operation with the help of State Governments.
  • The first Agricultural Census in the country was conducted with reference year 1970-71.
  • Agricultural Census is carried out as a Central Sector Scheme under which 100% financial assistance is provided to States/Union Territoriess.
  • Agricultural Census operation is carried out in three phases.


  • They are alternative cryptocurrencies that were launched after Bitcoin’s success.
  • They generally project themselves as better replacements for Bitcoin.
  • Bitcoin’s emergence as the first peer-to-peer digital currency was paving the way for many to follow.
  • Most altcoins are trying to target any perceived drawbacks that Bitcoin has and come up with competitive advantages in newer versions.


  • Angel funds refers to a money pool created by high-net-worth individuals or companies (generally called as angel investors), for investing in business startups.
  • They are a sub-category of venture capital funds with strict focus on startups, while venture capital funds generally invest at a later stage of development of the investee company.
  • In India the term Angel Funds is defined in SEBI (Alternative Investment Funds) (Amendment) Regulations, 2013.
  • Angel fund is defined as a sub-category of Venture Capital Fund under Category I- Alternative Investment Fund (AIF) that raises funds from angel investors and invests in accordance with the rules specified in Chapter III –A of SEBI (Alternative Investment Funds) (Amendment) Regulations, 2013.
  • Angel funds can raise funds only by way of issue of units to angel investors and should have a corpus of at least ten crore rupees.


  • Angel tax was introduced in the 2012 budget by the then finance minister to arrest laundering of funds.
  • Misuse of the incentives given to the start-ups was the main factor that tempted the government to impose tax on fresh investments over fair price of shares.
  • Technically, angel tax is an income tax payable on capital raised by unlisted companies from investors (mostly angel investors) via issue of shares if the sold share price is excess of the fair market value of the shares.
  • It is popularised as angel tax by the business community because such investment is usually a main fund mobilisation channel for start-ups that are mostly unlisted entities.


  • Annual Financial Statement is a document presented to the Parliament every year under Article 112 of the Constitution of India, showing estimated receipts and expenditures of the Government of India for the coming year in relation to revised estimates for the previous year as also the actual amounts for the year prior to it.
  • The receipts and disbursements are shown under three parts in which Government Accounts are to be kept viz.,(i) Consolidated Fund, (ii) Contingency Fund and (iii) Public Account.
  • Under the Constitution, Annual Financial Statement has to distinguish expenditure on revenue account from other expenditure. Government Budget, therefore, comprises of Revenue Budget and Capital Budget.
  • The estimates of receipts and disbursements in the Annual Financial Statement are shown according to the accounting classification prescribed by Comptroller and Auditor General of India under Article 150 of the Constitution, which enables Parliament and the public to make a meaningful analysis of allocation of resources and purposes of Government expenditure.


  • Asset turnover ratio is the ratio between the value of a company’s sales or revenues and the value of its assets. It is an indicator of the efficiency with which a company is deploying its assets to produce the revenue.
  • Thus, asset turnover ratio can be a determinant of a company’s performance. The higher the ratio, the better is the company’s performance. Asset turnover ratio can be different from company to company. Usually, it is calculated on an annual basis for a specific financial year.
  • Generally, a low asset turnover ratio suggests problems with surplus production capacity, poor inventory management and bad tax collection methods. Low-margin industries always tend to have a higher asset turnover ratio.


  • Bailout is a general term for extending financial support to a company or a country facing a potential bankruptcy threat. It can take the form of loans, cash, bonds, or stock purchases. A bailout may or may not require reimbursement and is often accompanied by greater government oversee and regulations.
  • The reason for bailout is to support an industry that may be affecting millions of people internationally and could be on the verge of bankruptcy due to prolonged financial crises.
  • Bailout policies come in various forms, the most common being direct loans or guarantees of third-party (private) loans to the rescued entity. These direct loans are often on terms favouring the entity being rescued. Sometimes even direct subsidies are provided to the parties concerned. Stock purchases are also not uncommon.
  • Bailouts have several advantages. First, they ensure continued survival of the entity being rescued under difficult economic circumstances. Secondly, a complete collapse of the financial system can be avoided, when industries too big to fail start to crumble. The government in these cases steps in to avoid the insolvency of institutions that are needed for the smooth functioning of the overall markets.
  • Bailouts also have their disadvantages. Anticipated bailouts encourage a moral hazard by allowing not only promoters but also other stakeholders (customers, lenders, suppliers) to take higher-than-recommended risks in financial transactions. This happens because they start counting on a bailout when things go wrong.


  • The difference between a country’s imports and its exports. Balance of trade is the largest component of a country’s balance of payments.
  • Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad.
  • Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy.
  • A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus.
    Also referred to as “trade balance” or “international trade balance.”


  • Bank rate is the rate charged by the central bank for lending funds to commercial banks.
  • Bank rates influence lending rates of commercial banks. Higher bank rate will translate to higher lending rates by the banks.
  • In order to curb liquidity, the central bank can resort to raising the bank rate and vice versa.
  • The Reserve Bank of India determines the bank rate. The rate is changed from time to time but it does not mean that there is already a set schedule for it.
  • The rate at which the repo rates are changed depends entirely on the prevailing economy.


  • The Banking Ombudsman Scheme was implemented by the RBI to redress the complaints of customers on certain types of banking services provided by banks and to facilitate the settlement of those complaints.
  • The scheme was introduced under the Banking Regulation Act of 1949 by RBI with effect from 1995. Later it was legally refined and modified through the introduction of regulations under Banking Ombudsman Scheme 2006. The latest revision was made in 2017.
  • The Banking Ombudsman actually is a senior official appointed by the RBI to redress customer complaints against pitfalls in the stipulated banking services covered by the Banking Ombudsman Scheme 2006 (modifications were made in 2017).
  • All Scheduled Commercial Banks, Regional Rural Banks (RRBs) and Scheduled Primary Co-operative Banks (UCBs) are covered under the Scheme.


  • Banks Board Bureau (BBB) is an autonomous advisory body created by the government to enhance the governance of the Public Sector Banks and state-owned financial institutions.
  • The most popular function of the BBB is to recommend the whole-time directors as well as non-executive chairpersons of public sector banks (PSBs) and state-owned financial institutions.
  • The BBB was created after the recommendations of the Committee to Review Governance of Boards of Banks in India (Chairman -PJ Nayak Committee – 2014).
  • Main objective of the creation of BBB was to empower the boards of the Public Sector Banks.
  • It was created in February 2016 and started functioning from April 2016.
  • It is an autonomous recommendatory body.
  • A search Committee including the RBI Governor recommends the names for the appointment of BBB members.
  • The six member BBB panel has three government officials and three experts, of which two are from banking sector.
  • Following are the main functions of the BBB.
    1. Responsible for the selection and appointment of Board of Directors in PSBs and FIs (Whole-time Directors and Non-Executive Chairman);
    2. Advise the Government on matters relating to appointments, confirmation or extension of tenure and termination of services of the Board of Directors of the above-mentioned levels.
    3. To advise the Government on the desired structure at the Board level, and, for senior management personnel, for each PSB and Financial Institution (FI).
    4. To help banks to develop a robust leadership succession plan for critical positions that would arise in future through appropriate HR processes including performance management systems.
    5. To build a data bank containing data relating to the performance of PSBs/FIs and its officers.
    6. To advise the Government on the formulation and enforcement of a code of conduct and ethics for managerial personal in PSBs/Financial Institutions.
    7. To advise the Government on evolving suitable training and development programmes for management personnel in PSBs/FIs; and
    8. To help banks in terms of developing business strategies and capital raising plan etc.


  • Base rate is the minimum rate set by the Reserve Bank of India below which banks are not allowed to lend to its customers.
  • Base rate is decided in order to enhance transparency in the credit market and ensure that banks pass on the lower cost of fund to their customers. Loan pricing will be done by adding base rate and a suitable spread depending on the credit risk premium.


  • It refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax. Developing countries’ higher reliance on corporate income tax means they suffer from BEPS disproportionately.
  • BEPS practices cost countries USD 100-240 billion in lost revenue annually.
  • Working together within OECD/G20 Inclusive Framework on BEPS, over 135 countries and jurisdictions are collaborating on the implementation of 15 measures to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.


  • The BASEL Committee is a committee of bank supervisors consisting of members from each of the G10 countries.
  • The Committee is a forum for discussion on the handling of specific supervisory problems.
  • It coordinates the sharing of supervisory responsibilities among national authorities in respect of banks’ foreign establishments with the aim of ensuring effective supervision of banks’ activities worldwide.


  • The BASEL Capital Accord is an Agreement concluded among country representatives in 1988 to develop standardised risk-based capital requirements for banks across countries.
  • The Accord was replaced with a new capital adequacy framework (BASEL II), published in June 2004.
  • BASEL II is based on three mutually reinforcing pillars hat allow banks and supervisors to evaluate properly the various risks that banks face.
  • These three pillars are:
    • Minimum capital requirements, which seek to refine the present measurement framework
    • supervisory review of an institution’s capital adequacy and internal assessment process;
    • market discipline through effective disclosure to encourage safe and sound banking practices


  • Refers to the incremental income that people who are physically attractive earn when compared to others who are considered less attractive.
  • The beauty premium has been attributed by researchers to a variety of reasons, including psychological biases that affect employer choices while hiring workers.
  • Workers and managers who are physically attractive may be considered more honest and competent at work than others.
  • Some researchers, however, have denied the existence of the beauty premium in the labour market.
  • They argue that wage differences can be explained by factors other than physical beauty.


  • SONIA is short for Sterling Overnight Interbank Average Rate (weighted average overnight rate paid by banks for unsecured transactions in the British sterling market)
  • LIBOR (London Interbank Offered Rate)
  • SOFR (US), ESTR (European Union) and TONAR (Japan)
  • MIFOR (Mumbai Interbank Forward Offer Rate)
  • MODI – Mumbai Overnight Derivatives and Interest rate ( Future Indian benchmark)
  • Note: Indian businesses borrow dollars in the form of external commercial borrowings (ECBs). The interest costs on these borrowings are usually linked to LIBOR. In fact, RBI’s regulations on ECBs also use LIBOR to calculate the cost of loans.


  • Debt exchange-traded fund (ETF) that will hold bonds issued by PSEs owned by the Government of India.
  • Bharat Bond ETF is the first corporate bond ETFin the country going to be traded in the stock exchanges.
  • It is a brand-new investment product for the investors as well.
  • The Bharat Bond ETF invests in AAA rated bonds of PSEs such as REC, PFC, NHAI, etc.
  • The minimum amount is Rs 1,000 per bond and there is no maximum limit. But for retail investors, there is an upper limit of Rs 2 Lakhs.
  • The Bharat Bond ETF offers a unique combination of assured return (if held to maturity), beneficial tax treatment (if held for more than three years) and liquidity (if one needs to exit before maturity – as the ETFs will be listed on the exchanges).


  • Call money rate is the rate at which short term funds are borrowed and lent in the money market.
  • The duration of the call money loan is 1 day. Banks resort to these type of loans to fill the asset liability mismatch, comply with the statutory CRR and SLR requirements and to meet the sudden demand of funds. RBI, banks, primary dealers etc are the participants of the call money market. Demand and supply of liquidity affect the call money rate. A tight liquidity condition leads to a rise in call money rate and vice versa.


  • The call money market (CMM) the market where overnight (one day) loans can be availed by banks to meet liquidity.
  • Banks who seeks to avail liquidity approaches the call market as borrowers and the ones who have excess liquidity participate there as lenders.
  • The CMM is functional from Monday to Friday. Banks can access CMM to meet their reserve requirements (CRR and SLR) or to cover a sudden shortfall in cash on any particular day.
  • Effectively, the Call Money Market is the main market oriented mechanism to meet the liquidity requirements of banks.


  • Capital account can be regarded as one of the primary components of the balance of payments of a nation.
  • It gives a summary of the capital expenditure and income for a country.
  • The capital expenditure and income is tracked by way of funds in the form of investments and loans flowing in and out of an economy.
  • This account comprises foreign direct investments, portfolio investments, etc. It gives a summary of the net flow of both private and public investment into an economy.
  • A capital account deficit shows that more money is flowing out of the economy along with increase in its ownership of foreign assets and vice-versa in case of a surplus. The balance of payments contains the current account (which provides a summary of the trade of goods and services) in addition to the capital account which records all capital transactions.


  • Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions.
  • Capital markets help channelise surplus funds from savers to institutions which then invest them into productive use. Generally, this market trades mostly in long-term securities.
  • Capital market consists of primary markets and secondary markets. Primary markets deal with trade of new issues of stocks and other securities, whereas secondary market deals with the exchange of existing or previously-issued securities. Another important division in the capital market is made on the basis of the nature of security traded, i.e. stock market and bond market.


  • An environmental tax which is imposed on products which utilize carbon-based materials, and hence contribute to greenhouse gas pollution (including oil, gas, coal, and other fossil fuels).
  • The level of the tax should depend on the carbon (polluting) content of each material.
  • Carbon taxes offer a potentially cost-effective means of reducing greenhouse gas emissions. From an economic perspective, carbon taxes are a type of Pigovian tax.
  • They help to address the problem of emitters of greenhouse gases not facing the full (social) costs of their actions.
  • Carbon taxes can be a regressive tax, in that they may directly or indirectly affect low-income groups disproportionately.
  • The regressive impact of carbon taxes could be addressed by using tax revenues to favour low-income groups.


  • CASA stands for Current Account and Savings Account which is mostly used in West Asia and South-east Asia. CASA deposit is the amount of money that gets deposited in the current and savings accounts of bank customers. It is the cheapest and major source of funds for banks. The savings accounts portion pays more interest compared to current accounts.


  • This commonly-used phrase stands for ‘all other things being unchanged or constant’. It is used in economics to rule out the possibility of ‘other’ factors changing, i.e. the specific causal relation between two variables is focused.


  • Central sector schemes are schemes with 100% funding by the Central government and implemented by the Central Government machinery.
  • The central sector schemes are mainly formulated on subjects mainly from the Union List. Besides, there are some other programmes that various Central Ministries implements directly in States and UTs which also comes under Central Sector Schemes.
  • In these schemes, the financial resources are not shifted to states


  • Centrally Sponsored Schemes are the schemes by the centre where there is financial participation by both the centre and states. Historically, CSS is the way through which central government helps states to run its Plans financially.
  • A stipulated percentage of the funding is provided by the States in terms of percentage contribution.
  • The ratio of state participation may vary in 50:50, 60:40, 70:30, 75:25, or 90:10; showing higher contributions by the centre. Various central government ministries directly transfer money to the state governments. Implementation of Centrally Sponsored Scheme is made by State/UT Governments.  Centrally Sponsored Schemes are created on areas that are covered under the State List.


An enterprise will be classified as a Micro, Small or Medium enterprise based on the following criteria:

(i)  Micro enterprise: investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees.

(ii) Small enterprise: investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees.

(iii) Medium enterprise: the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.

Table: New composite classification for MSMEs – Investment and turnover limits in (Rs crores)

Investment (plant and machinery) should not exceed (Rs): Turnover should not exceed (Rs):
Micro Enterprise 1 crore 5 crores
Small Enterprise 10 crores 50 crores
Medium Enterprise 50 crores 250 crores

The New criteria will be same for both Manufacturing Enterprises and Enterprises providing Services.


  • A cess imposed by the central government is a tax on tax, levied by the government for a specific purpose. Generally, cess is expected to be levied till the time the government gets enough money for that purpose.
  • A cess is different from the usual taxes like excise duty and personal income tax as it is imposed as an additional tax besides the existing tax (tax on tax).
  • Another difference between cess and the usual tax is the way in which tax revenue from cess is kept. Revenue from main taxes like Personal Income taxes are kept at Consolidated Fund of India (CFI). The government can use it for any purposes.
  • Surcharge is a charge on any tax, charged on the tax already paid. As the name suggests, surcharge is an additional charge or tax. The main surcharges are that on personal income tax (on high income slabs and on super rich) and on corporate income tax.
  • From the revenue side, surcharges are important as around 35% of all cesses and surcharges comes from the surcharge on direct taxes.
  • A common feature of both surcharge and cess is that the centre need not share it with states. Following are the difference between the usual taxes, surcharge and cess.
    • The usual taxes goes to the consolidated fund of India and can be spend for any purposes.
    • Surcharge also goes to the consolidated fund of India and can be spent for any purposes.
    • Cess goes to Consolidated Fund of India but can be spend only for the specific purposes.


  • The Basel based Bank for International Settlement which is doing pioneering and authoritative research works in central banking appointed a Committee on Central Bank digital currencies (2018). The Committee in its report observed that it is not easy to define CBDC. “CBDC is not a well-defined term. It is used to refer to a number of concepts.” – the BIS Committee on CBDC.
  • One fact about CBCD is that central banks across the world already provides digital money to commercial banks and other financial institutions in the form of reserves or settlement of balances. This means that when a bank is having higher reserves with the Reserve Bank of India, it gets a that much money in the form of CBCD.
  • CBDC is a digital payment device which is issued and fully backed by a central bank and is a legal tender.s


  • The Collateralized Borrowing and Lending Obligation (CBLO) market is a money market segment operated by the Clearing Corporation of India Ltd (CCIL).
  • In the CBLO market, financial entities can avail short term loans by providing prescribed securities as collateral.
  • In terms of functioning and objectives, the CBLO market is almost similar to the call money market.
  • The uniqueness of CBLO is that lenders and borrowers use collateral for their activities. For example, borrowers of fund have to provide collateral in the form of government securities and lenders will get it while giving loans. 
  • There is no such need of a collateral under the call money market.
  • Institutions participating in CBLO are entities who have either no access or restricted access to the inter -bank call money market. 
  • It is a discounted instrument available in electronic book entry form for the maturity period ranging from one day to one year.


  • There are five components in the RBI’s capital reserve. The first two (CF and ADF) are Funds created to meet specific purposes and provisions are made yearly to add money to these funds.
  • The other three (CGRA, IRA and FCVA) are valuation accounts just shows the gain or losses in foreign exchange, government securities or foreign currency contracts handled by the RBI.
  • Following are the five components of the RBI’s capital reserve.
    1. Contingency Fund (CF)
    2. Asset Development Fund (ADF)
    3. Currency and Gold Revaluation Account (CGRA)
    4. Investment Revaluation Account (IRA) and
    5. Foreign Exchange Forward Contracts Valuation Account (FCVA).
  1. All these five components are recorded in the liability side of the RBI’s balance sheet.
  2. What is Contingency Fund (CF)?
    • The CF is a fund set apart for meeting the unforeseen contingencies, including depreciation in the value of securities, risks arising out of monetary/exchange rate policy operations, systemic risks and any risk arising on account of the special responsibilities enjoined upon the Bank.
  1. What is Asset Development Fund?
    • The Asset Development Fund (ADF) has been set aside for investment in subsidiaries and associates and internal capital expenditure.
  1. Currency and Gold Revaluation Account (CGRA)
    • The CGRA shows fund that is available to compensate RBI’s loss in the value of gold and foreign exchange reserve holdings. Gains and losses of the values of Gold and Foreign Currency Assets decreases or increases the CGRA money.
    • Maintained by the Reserve Bank of India.
    • To take care of currency risk, interest rate risk and movement in gold prices.
    • Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not taken to the income account but instead accounted for in the CGRA.
    • Provides a buffer against exchange rate/ gold price fluctuations.
    • Thus, changes in the market value of gold and forex assets (like the US Government securities where the RBI invested its foreign exchange reserves) is reflected in the CGRA.
    • CGRA provides a buffer against exchange rate/gold price fluctuations. When CGRA is not enough to fully meet exchange losses, it is replenished from the contingency fund.
    • Increase in gold price and depreciation of the rupee increases the CGRA fund.
  1. Investment Revaluation Account (IRA)
    • The investment Revaluation Account shows the buffer amount available with the RBI to compensate losses and to accommodate gains in (i) foreign securities and (ii) domestic securities. RBI holds significant portion of foreign securities and domestic securities (government of India). Under IRA, the marked to market gains and losses are measured.
  1. Foreign Exchange Forward Contracts Valuation Account (FCVA)
    • The FCVA measures marked to market (periodic) gains and losses for the RBI from foreign exchange forward contracts.


  • A comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption expenditure in an economy is called consumer price index.
  • The calculation involved in the estimation of CPI is quite rigorous. Various categories and sub-categories have been made for classifying consumption items and on the basis of consumer categories like urban or rural.
  • Based on these indices and sub-indices obtained, the final overall index of price is calculated mostly by national statistical agencies.
  • It is one of the most important statistics for an economy and is generally based on the weighted average of the prices of commodities.
  • It gives an idea of the cost of living.
  • Inflation is measured using CPI.
  • The percentage change in this index over a period of time gives the amount of inflation over that specific period, i.e. the increase in prices of a representative basket of goods consumed.


  • The government can issue Consol bonds to deal with the current economic challenges.
  • A consol bond doesn’t have date of maturity, but offers a higher coupon rate.
  • These bonds were used by European countries to fund to the ongoing cost of the First World War in 1917 and for redevelopment works post World War II.
  • It is also known as perpetual bond.
  • Consols have a fixed interest rate (coupon payments).
  • They are not redeemable until the issuer (government) decides to call it back.
  • Therefore, this type of bond is often considered a type of equity, rather than debt.


  • The Labour and Employment Ministry revised the base year of the Consumer Price Index for Industrial Workers (CPI-IW) from 2001 to 2016
  • Reflect the changing consumption pattern, giving more weightage to spending on health, education, recreation and other miscellaneous expenses, while reducing the weight of food and beverages.
  • Apart from measuring inflation in retail prices, the CPI-IW was used to regulate the DA of government employees and industrial workers, as well as fixing and revising minimum wages in scheduled employments
  • Note: CPI for agriculture workers, currently has the base year of 1986-87


  • In economics and finance, a contagion can be explained as a situation where a shock in a particular economy or region spreads out and affects others by way of, say, price movements.
  • The contagion effect explains the possibility of spread of economic crisis or boom across countries or regions.
  • This phenomenon may occur both at a domestic level as well as at an international level.
  • The failure of Lehman Brothers in the United States is an example of a domestic contagion.


A contractionary policy is a kind of policy which lays emphasis on reduction in the level of money supply for a lesser spending and investment thereafter so as to slow down an economy.

  • A nation’s central bank uses monetary policy tools such as CRR, SLR, repo, reverse repo, interest rates etc to control the money supply flows into the economy. Such measures are used at high growth periods of the business cycle or in times of higher than anticipated inflation.
  • Discouraging spending by way of increased interest rates and reduced money supply helps control rising inflation.
  • It may also lead to increased unemployment at the same time.


  • An inflation measure which excludes transitory or temporary price volatility as in the case of some commodities such as food items, energy products etc.
  • It reflects the inflation trend in an economy.
  • A dynamic consumption basket is considered the basis to obtain core inflation. Some goods and commodities have extremely volatile price movements. Core inflation is calculated using the Consumer Price Index (CPI) by excluding such commodities.


  • Non-banking financial companies with asset size of ₹100 crore and above
  • Carry on the business of acquisition of shares and securities, subject to certain conditions.
  • Allowed to accept public funds, hold not less than 90% of their net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies.
  • Asset size of below Rs 100 crore are exempted from registration and regulation from the RBI, except if they wish to make overseas investments in the financial sector.


  • Used for Computation of Long-Term Capital Gain.
  • Notified by Central Board of Direct Tax (CBDT) every year and till date CBDT has notified Cost Inflation Index for the Financial Year 1981-82 to Financial year 2020-21.
  • Used for computing indexed cost of acquisition.


  • Cost push inflation is inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods.
  • While the demand remains constant, the prices of commodities increase causing a rise in the overall price level.
  • This is in essence cost push inflation.
  • In this case, the overall price level increases due to higher costs of production which reflects in terms of increased prices of goods and commodities which majorly use these inputs. This is inflation triggered from supply side i.e. because of less supply. The opposite effect of this is called demand pull inflation where higher demand triggers inflation.
  • Apart from rise in prices of inputs, there could be other factors leading to supply side inflation such as natural disasters or depletion of natural resources, monopoly, government regulation or taxation, change in exchange rates, etc. Generally, cost push inflation may occur in case of an inelastic demand curve where the demand cannot be easily adjusted according to rising prices.


  • Duties that are imposed in order to counter the negative impact of import subsidies to protect domestic producers are called countervailing duties.
  • In cases foreign producers attempt to subsidize the goods being exported by them so that it causes domestic production to suffer because of a shift in domestic demand towards cheaper imported goods, the government makes mandatory the payment of a countervailing duty on the import of such goods to the domestic economy.
  • This raises the price of these goods leading to domestic goods again being equally competitive and attractive. Thus, domestic businesses are cushioned. These duties can be imposed under the specifications given by the WTO (World Trade Organization) after the investigation finds that exporters are engaged in dumping. These are also known as anti-dumping duties.
  • The objective of CVD is to nullify or eliminate the price advantage (low price) enjoyed by an imported product when it is given subsidies or exempted from domestic taxes in the country where they are manufactures.
  • Often countries give subsidies to their exported products so that they can compete in the international market at a reduced price. 


  • Credit rating is an assessment of the creditworthiness of a borrower including an individual, a company or a country.
  • Credit ratings are expressed as letter grades and used for businesses and governments.
  • Credit scores are numbers used for individuals and some small businesses.
  • An individual’s credit score is based on information from the three major credit reporting agencies, and scores range from 300 to 850.
  • A FICO score takes information from all three major credit bureaus to create an individual’s credit score.
  • Credit ratings are produced by credit rating agencies, such as S&P Global.


  • Credit default swaps (CDS) are a type of insurance against default risk by a particular company.
  • The company is called the reference entity and the default is called credit event.
  • It is a contract between two parties, called protection buyer and protection seller.
  • Under the contract, the protection buyer is compensated for any loss emanating from a credit event in a reference instrument. In return, the protection buyer makes periodic payments to the protection seller.


  • The measure of responsiveness of the demand for a good towards the change in the price of a related good is called cross price elasticity of demand. It is always measured in percentage terms.


  • A situation when increased interest rates lead to a reduction in private investment spending such that it dampens the initial increase of total investment spending is called crowding out effect.
  • Sometimes, government adopts an expansionary fiscal policy stance and increases its spending to boost the economic activity.
  • This leads to an increase in interest rates. Increased interest rates affect private investment decisions. A high magnitude of the crowding out effect may even lead to lesser income in the economy.
  • With higher interest rates, the cost for funds to be invested increases and affects their accessibility to debt financing mechanisms.
  • This leads to lesser investment ultimately and crowds out the impact of the initial rise in the total investment spending. Usually the initial increase in government spending is funded using higher taxes or borrowing on part of the government.


  • Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a Central Bank.
  • Cryptocurrencies are a specific variant of digital currencies.
  • A cryptocurrency’s feature can be understood from the word crypto.
  • The currency here, is born out of the digital activity called cryptography.
  • It is a digital asset more and can be used as a device (money) to purchase goods and service.
  • The individual cryptocurrency ownership can be stored in a ledger in the form of computerised database and there are credible transaction records.


  • The currency deposit ratio shows the amount of currency that people hold as a proportion of aggregate deposits.
  • An increase in cash deposit ratio leads to a decrease in money multiplier. An increase in deposit rates will induce depositors to deposit more, thereby leading to a decrease in Cash to Aggregate Deposit ratio. This will in turn lead to a rise in Money Multiplier.


  • The term currency ETF refers to a financial product that provides investors with exposure to foreign exchange (forex) currencies.
  • Like other exchange-traded funds (ETFs), investors can purchase currency ETFs on exchanges just like shares of corporate stocks.
  • These investments are usually passively managed, where underlying currencies are held in a single country or basket of countries.
  • Like any investment, currency ETFs come with their own risks and rewards.
  • Currency ETFs are exchange-traded funds that track the relative value of a currency or a basket of currencies.
  • These investment vehicles allow ordinary individuals to gain exposure to the forex market through a managed fund without the burdens of placing individual trades.
  • Currency ETFs can be used to speculate on forex markets, diversify a portfolio, or hedge against currency risks.
  • Risks associated with currency ETFs tend to be macroeconomic, including geopolitical risks and interest rate hikes.


  • A currency swap between two countries is an agreement or contract to exchange currencies (of the two countries or any hard currency) with predetermined terms and conditions.
  • Often the popular form of currency swap is between two central banks.
  • Here, the main purpose of currency swap by a central bank like the RBI is to get the foreign currency form the issuing foreign central bank at the predetermined conditions (like exchange rate and the volume of currency) for the swap.
  • Besides supporting the domestic currency and foreign exchange market, another main purpose of currency swap is to keep the value of the foreign exchange reserves kept with the central bank.
  • Besides currency or exchange rate stability, currency swaps between governments also have supplementary objectives like promotion of bilateral trade, maintaining the value of foreign exchange reserves with the central bank and ensuring financial stability (protecting the health of the banking system).
  • Currency swap agreement can be bilateral or multilateral.
  • Usually, currency swap agreements are of five types depending upon the nature and the status of the currencies swapped.
    • Exchange cash for cash vs cash for securities;
    • Exchange conditional vs unconditional swaps;
    • Exchange reserve currencies on both sides;
    • Exchange reserve currency for non-reserve currency; and
    • Exchange non-reserve currencies on both sides.


  • Current Account is the sum of the balance of trade(exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). Current account deficit in simple terms is dollars flowing in minus dollars flowing out.
  • Current Account Deficit is slightly different from Balance of Trade, which measures only the gap in earnings and expenditure on exports and imports of goods and services. Whereas, the current account also factors in the payments from domestic capital deployed overseas.
  • Current Account Deficit may be a positive or negative indicator for an economy depending upon why it is running a deficit. Foreign capital is seen to have been used to finance investments in many economies. Current Account Deficit may help a debtor nation in the short-term, but it may worry in the long-term as investors begin raising concerns over adequate return on their investments.
  • CAD exists due to a host of factors including existing exchange rate, consumer spending level, capital inflow, inflation level, and prevailing interest rate.
  • For the Current Account Deficit in India, crude oil and gold imports are the primary reasons behind high CAD.
  • The Current Account Deficit could be reduced by boosting exports and curbing non-essential imports such as gold, mobiles, and electronics.
  • Currency hedging and bringing easier rules for manufacturing entities to raise foreign funds could also help. The government and RBI could also look to review debt investment limits for FPIs, among other measures.


  • Capital account Deficit occurs when payments made by a country for purchasing foreign assets exceed payments received by that country for selling domestic assets. (For example, if Indians are buying a lot of properties in the US, but if Americans are not buying any properties or buildings in India, India will have a Capital Account Deficit.)
  • A deficit in the capital account means money is flowing out the country, but it also suggests the nation is increasing its claims on foreign assets. 
  • In other words at times of Capital Account Deficit, foreign investment in domestic assets is less and investment by the domestic economy in foreign assets is more.


  • Dated Government securities are long term securities or bonds of the government that carries a fixed or floating coupon (interest rate).
  • Securities are issued by the government (centre or state) for mobilizing funds.
  • Mostly financing the fiscal deficit is the most important purpose for issuing the dated securities.
  • The remuneration for buying the dated securities is the interest payment which are called coupon.
  • The interest payment is fixed and is a percentage of the face value of the security. Interest is paid at regular intervals (usually half-yearly). The tenor of dated securities can be up to 30 years. But the most common tenure is five year and ten year.
  • Securities are held mostly by commercial banks (in the form of SLR) and other financial institutions. The government securities are tradable in the stock market.
  • Short term instruments are treasury bills that have a maturity of less than one year (91 days, 182 days (now not issued) and 364 days). For treasury bills, there is no interest payments but the bill is obtained at a discount. 


  • The debt-equity ratio is a measure of the relative contribution of the creditors and shareholders or owners in the capital employed in business. Simply stated, ratio of the total long term debt and equity capital in the business is called the debt-equity ratio. It can be calculated using a simple formula.


  • A Depository Receipt (DR) is a financial instrument representing certain securities (eg. shares, bonds etc.) issued by a company/entity in a foreign jurisdiction.
  • Securities of a firm are deposited with a domestic custodian in the firm’s domestic jurisdiction, and a corresponding “depository receipt” is issued abroad, which can be purchased by foreign investors.
  • DR is a negotiable security (which means an instrument transferrable by mere delivery or by endorsement and delivery) that can be traded on the stock exchange, if so desired.
  • DRs constitute an important mechanism through which issuers can raise funds outside their home jurisdiction. DRs are issued for tapping foreign investors who otherwise may not be able to participate directly in the domestic market.
  • It is perceived as the beginning point of connecting with the foreign investors (i.e. a stage before the actual listing the shares /securities in a foreign stock exchange) or a way of introducing the company to a foreign investor. For investors, depository receipt is a way of diversifying the risk, by getting exposure to a foreign market, but without the exchange rate risk as they are foreign currency denominated. Further, they feel safer to invest from their home location.
  • Depending on the location in which these receipts are issued they are called as ADRsor American Depository Receipts (if they are issued in USA on the basis of the shares/securities of the domestic (say Indian) company), IDR or Indian Depository Receipts (if they are issued in India on the basis of the shares/securities of the foreign company; Standard Chartered issued the first IDR in India) or in general as GDR or Global Depository Receipt.
  • Thus, ADR or GDR are issued outside India by a foreign depository on the back of an Indian security deposited with a domestic Indian custodian in India (means a custodian or keeper of securities- an Indian depository, a depository participant, or a bank- and having permission from the securities market regulator, SEBI, to provide services as custodian).
  • In India any company – whether private limited or public limited or listed or unlisted – can issue DRs. However listed DRs enjoy some tax benefits.
·         This financial tool gives an idea of how much borrowed capital (debt) can be fulfilled in the event of liquidation using shareholder contributions. It is used for the assessment of financial leverage and soundness of a firm and is typically calculated using previous fiscal year’s data.

·         A low debt-equity ratio is favorable from investment viewpoint as it is less risky in times of increasing interest rates. It therefore attracts additional capital for further investment and expansion of the business.


·         Non-debt receipts are the receipts which doesn’t incur any future repayment burden for the government.

·         On the other hand, the debt receipts are those which are to be repaid by the government.

·         Borrowings is the debt receipts.

·         Other receipts in the budget are non-debt receipts.

·         On the other hand, in the case of non-debt receipts like tax revenues (or tax receipts) obtained by the government is that there is no repayment.

·         Following are the major receipts items in the central government.

·         Debt receipts or borrowing is shown in item number (e). Other items are non-debt receipts.

·         The non-debt receipts have tremendous importance for the central government in terms of their desirability.

·         Most important feature is that they don’t have any debt or repayment impact. So, from the fiscal sustainability angle, high and increasing share of the non-dent receipts is highly desirable. For the central government, following are the m main receipts items.

·         Nearly 75% of the total budget receipts are non-debt receipts.




·         When the overall price level decreases so that inflation rate becomes negative, it is called deflation. It is the opposite of the often-encountered inflation.

·         A reduction in money supply or credit availability is the reason for deflation in most cases. Reduced investment spending by government or individuals may also lead to this situation. Deflation leads to a problem of increased unemployment due to slack in demand.

·         Central banks aim to keep the overall price level stable by avoiding situations of severe deflation/inflation.

·         They may infuse a higher money supply into the economy to counter- balance the deflationary impact.

·         In most cases, a depression occurs when the supply of goods is more than that of money.

·         Deflation is different from disinflation as the latter implies decrease in the level of inflation whereas on the other hand deflation implies negative inflation.


  • The monetary value of an asset decreases over time due to use, wear and tear or obsolescence.
  • This decrease is measured as depreciation.
  • Depreciation, i.e. a decrease in an asset’s value, may be caused by a number of other factors as well such as unfavorable market conditions, etc.
  • Machinery, equipment, currency are some examples of assets that are likely to depreciate over a specific period of time.
  • Opposite of depreciation is appreciation which is increase in the value of an asset over a period of time.


  • Depression is defined as a severe and prolonged recession. A recession is a situation of declining economic activity. Declining economic activity is characterized by falling output and employment levels.
  • Generally, when an economy continues to suffer recession for two or more quarters, it is called depression.
  • The level of productivity in an economy falls significantly during a depression.
  • Both the GDP (gross domestic product) and GNP (gross national product) show a negative growth along with greater business failures and unemployment.
  • When a recession continues to take its toll on any economy, the built in process triggers further cuts in investment as well as consumption spending due to loss of confidence among investors and consumers. Also, the financial crisis may lead to decreased availability for credit. Excessive fluctuations happen in relative value of currency. Overall trade and commerce get reduced. The Great Depression of 1929 is considered to be the most classic example of a depression in economic history.


  • Direct Tax Code is set of rules that is going to replace the existing Income Tax Act (IT Act).
  • It covers all taxes that is under the present IT Act including corporate income tax and personal income tax. Effort to create a DTC started from 2009 onwards.


  • Disinflation is a situation of decrease in the rate of inflation over successive time period.
  • It is simply slowing of inflation. Here, the inflation rates for successive periods are taken and we find that inflation rate decreases steadily over these different time periods.
  • Disinflation is quite a pleasant one especially for a developing economy. High level of inflation is a nuisance or price instability for many developing economies. For them, price level management is actually inflation management.
  • Hence for developing economies like India, disinflation is a happy trend as it is an escaping situation from high level of inflation.
  • Disinflation and deflation are different. Deflation is the decline of price level. On the other, disinflation is the decrease of inflation. Actually, price level increases under disinflation, but the rate of that increase, decreases. Under deflation, prices are coming down but under disinflation, inflation is coming down. 


  • Disinvestment means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets.
  • The government undertakes disinvestment to reduce the fiscal burden on the exchequer, or to raise money for meeting specific needs, such as to bridge the revenue shortfall from other regular sources.
  • In some cases, disinvestment may be done to privatise assets.
  • However, not all disinvestment is privatization. Some of the benefits of disinvestment are that it can be helpful in the long-term growth of the country; it allows the government and even the company to reduce debt.
  • Disinvestment allows a larger share of PSU ownership in the open market, which in turn allows for the development of a strong capital market in India.
  • Main objectives of Disinvestment in India:
  • Reducing the fiscal burden on the exchequer
  • Improving public finances
  • Encouraging private ownership
  • Funding growth and development programmes
  • Maintaining and promoting competition in the market


  • The Dividend Distribution Tax is a tax levied on dividends that a company pays to its shareholders out of its profits.
  • The Dividend Distribution Tax, or DDT, is taxable at source, and is deducted at the time of the company distributing dividends.
  • The dividend is the part of profits that the company shares with its shareholders.
  • The law provides for the Dividend Distribution Tax to be levied at the hands of the company, and not at the hands of the receiving shareholder.
  • Under Section 115-O, the Income Tax Act, any domestic firm which is declaring or distributing dividend has to pay DDT at the rate of 15 per cent on the gross amount of dividend. Successive governments have, from time to time, dabbled with imposing and removing Dividend Distribution Tax, according to the market conditions and need of the exchequer.
  • Other than Dividend Distribution Tax (DDT), the Securities Transaction Tax (STT) and Long-Term Capital Gains (LTCG) tax are other major taxes levied on market instruments.


  • Domestic institutional investors are those institutional investors which undertake investment in securities and other financial assets of the country they are based in.
  • Institutional investment is defined to be the investment done by institutions or organizations such as banks, insurance companies, mutual fund houses, etc in the financial or real assets of a country. Simply stated, domestic institutional investors use pooled funds to trade in securities and assets of their country.
  • These investment decisions are influenced by various domestic economic as well as political trends. In addition to the foreign institutional investors, the domestic institutional investors also affect the net investment flows into the economy.


  • The Dollar-Rupee swap facility is a liquidity facility by the RBI where the central bank provides either dollar liquidity or rupee liquidity by accepting the opposite currency.
  • The liquidity is provided to selected institutions (Category -I Authorised Dealers who are mainly commercial banks). Implication of the swap is that if the RBI sells dollar to the institutions today, they have to return the dollar at the end of the swap period. The opposite happens when the RBI buys dollar. One side of the transaction is Dollar whereas the other side is rupee.
  • Similarly, in the case of the Dollar-Rupee Buy Sell swap, the RBI will be buying dollar and at the end of the period, the RBI has to return the dollars to the banks. Here, the banks should give a premium to the RBI. This premium will be decided at the auction.
  • The Rupee-Dollar Swap may be either to sell dollars to banks or to sell rupee to banks. When the RBI sells dollars to banks, it will get rupee in return. On the other hand, when the RBI sells Indian Rupee, it can get US Dollars from banks in exchange.
  • The Dollar-Rupee Swap is a liquidity management tool that is operated through a swap (exchange) between the US Dollar and the Rupee; aimed to facilitate comfortable liquidity situation in the economy.


  • An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
  • A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, – on the basis of currently known facts, conditions and values – highly questionable and improbable.


  • An international cooperation of Financial Intelligence Units (FIUs) for the promotion of international co-operation in the fight against money laundering and financing of terrorism.
  • The Egmont group cooperates with FATF and the G20 in fighting money laundering and terrorism financing.
  • Financial Intelligence Unit-India (FIU-IND) is a member of the Egmont group.
  • In India, the FIU- IND was set by the Government of India in 2004 as the central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions. The Financial Intelligence unit of India has to submit reports to the Ministry of Finance.


  • EMI or equated monthly installment, as the name suggests, is one part of the equally divided monthly outgoes to clear off an outstanding loan within a stipulated time frame.
    Description: The EMI is dependent on multiple factors, such as:
    1) Principal borrowed
    2) Rate of interest
    3) Tenure of the loan
    4) Monthly/annual resting period


  • ETFs or exchange traded funds are similar to index mutual funds. However, they trade just like stocks.
  • ETFs were started in 2001 in India. They comprise a portfolio of equity, bonds and trade close to its net asset value. These funds mainly track an index, a commodity, or a pool of assets.
    They have the following advantages over mutual funds and equity/debt funds:
  1. Lower Costs: An investor who buys an ETF doesn’t have to pay an advisory/management fee to the fund manager and taxes are relatively lower in ETFs.
  2. Lower Holding Costs:As commodity ETFs are widely traded in, there isn’t any physical delivery of commodity. The investor is just provided with an ETF certificate, similar to a stock certificate.


  • Emergency Credit Line Guarantee Scheme provides 100% guaranteed loans to eligible MSMEs. The scheme basically provides credit guarantee for the loans taken by MSMEs from banks and NBFCs with conditionalities.
  • All Scheduled Commercial Banks are eligible as MLIs.
  • The credit facility is guaranteed by the National Credit Guarantee Trustee Company (NCGTC).
  • NCGTC gives guarantee to banks and eligible NBFCs. Loans provided by these banks and NBFCs to the eligible MSMEs will be qualified for getting the guarantee.
  • An important condition is that the loan availing MSMEs should not have any NPAs.


  • Exchange rate is the price of one currency in terms of another currency. Exchange rates can be either fixed or floating. Fixed exchange rates are decided by central banks of a country whereas floating exchange rates are decided by the mechanism of market demand and supply.


  • Expenditure Budget provides complete information about the total expenditure of the Union government in a financial year.
  • This exhaustive information is classified into two broad categories as per the end-use – capital expenditure and revenue expenditure. While the former results in the creation of a physical asset or investment, the latter comprises mainly operational expenses such as payment of wages, pensions, subsidies, and interest.
  • Further, the expenditure budget is in two parts: charged expenditure and voted expenditure, which are explained briefly below.
  • Charged expenditure like payment of interest on the money borrowed by the government of India is considered the liability of the government. Therefore, it is not required to be put to the vote in the Lok Sabha.
  • Voted expenditure, on the other hand, comprises those revenue and capital expenditures that are required to be approved by the Lok Sabha by way of voting.


  • ECB is basically a loan availed by an Indian entity from a nonresident lender. Most of these loans are provided by foreign commercial banks and other institutions. It is a loan availed of from non-resident lenders with a minimum average maturity of 3 years.
  • The significance of ECBs their size in India’s balance of payment account. In the post reform period, ECBs have emerged a major form of foreign capital like FDI and FII.
  • External Commercial Borrowings (ECBs) includes commercial bank loans, buyers’ credit, suppliers’ credit, securitized instruments such as Floating Rate Notes and Fixed Rate Bonds etc., credit from official export credit agencies and commercial borrowings from Multilateral Financial Institutions.
  • ECBs are being permitted by the Government as a source of finance for Indian Corporate for expansion of existing capacity as well as for fresh investment. Following are the advantages of ECBs.

Advantages of ECBs 

  • ECBs provide opportunity to borrow large volume of funds
  • The funds are available for relatively long term
  • Interest rate are also lower compared to domestic funds
  • ECBs are in the form of foreign currencies. Hence, they enable the corporate to have foreign currency to meet the import of machineries etc.
  • Corporate can raise ECBs from internationally recognised sources such as banks, export credit agencies, international capital markets etc.


  • Emission intensity is the volume of emissions per unit of GDP.
  • Reducing emission intensity means that less pollution is being created per unit of GDP.
  • Under the Nationally Determined Contributions (NDCs), that were adopted five year ago through the Paris Agreement, India committed to reduce the emission intensity of GDP by 33–35 per cent by 2030


  • According the budget document, “Extra budgetary resources (EBRs) are those financial liabilities that are raised by Public Sector Undertakings for which repayment of entire principal and interest is done from Government budget,”
  • Such borrowings are made by state-owned firms to fund government schemes but are not part of the official budget calculations.
  • Extra budget borrowing is excluded from the fiscal deficit calculations, but at the same time, are added to the total debt of the government.
  • In recent years, several CPSUs have raised resources from the market by issuing Government of India-Fully Serviced Bonds (GoIFSB) for which the repayment of both principal and interest is to be done from the Budget.
  • This means that though the borrowing is not a part of the consolidated fund of India, the interest payment for such borrowings are made out of the consolidated fund.
  • The borrowings are made through Government of India fully serviced bonds and NSSF Loans)


  • The equalization levy as a tax was imposed on non-resident digital firms who get income in India and transfer it to their registered locations overseas. Purpose of this practice by MNCs was to avoid paying tax in India.
  • Equalization levy has relevance in the context of increased digitalization causing tax revenue losses for the government. It is a universal problem as several governments’ losses tax revenue from the income earned by digital MNCs.
  • It is to overcome this tax disadvantage for India that the government has imposed an equalization levy.
  • Equalization levy introduced in India is similar to the famous ‘google tax’ (Diverted Profits Tax) imposed by the UK government on digital MNCs.


  • Minimum price at which rate sugarcane is to be purchased by sugar mills from farmers.
  • Fixed by Union government on the basis of recommendations of Commission for Agricultural Costs and Prices (CACP), a statutory body that advises the government on the pricing policy for major farm produce and after consultation with State Governments and other stake-holders.
  • Determined under Sugarcane (Control) Order, 1966.
  • Major sugarcane producing states such as Uttar Pradesh, Punjab and Haryana fix their own sugarcane price called ‘state advisory prices’ (SAPs), which are usually higher than the Centre’s FRP.


  • In the commodities market, fair trade price is the minimum price that importers must pay to the producers of some agricultural products such as coffee and banana.
  • It is the floor price that must be paid irrespective of the market price.
  • When the market price of a commodity is higher than this minimum price, the buyer must pay the former.
  • But if the market price falls below the fair-trade price, the producer must be paid at least a price equal to the fair-trade price.
  • Fair trade price acts as a security net that reduces market risks of farmers and attempts to improve their living conditions.
  • The fair-trade price policy comes under the fair-trade standards, which stipulate that it is unfair to pay market price to the producers in developing countries if the price is too low to survive and does not provide them at least the cost of production.


  • Financial benchmarks are standard rates primarily used for pricing, valuation and settlement purposes in financial markets and contracts.
  • At their core, financial benchmarks are rates (interest rate) or prices (of bonds) that are referenced or used in a variety of financial contracts to determine a value or payment.
  • For example, a firm may borrow money today and pay the lender interest based on the market interest rates, indicated in a financial benchmark.
  • Financial rates like the standard interest rate, exchange rate, government security’s yield etc are some of the important benchmarks in the financial system.


  • The one-year period for which financial statements of a government or a company is prepared is referred to as the financial year or fiscal year (FY).
  • Countries, depending on their institutional requirements, define their financial year (FY) different from their calendar year (which runs from 1 January to 31 December). India’s financial year runs from 1st April to 31st March of next year.


  • Fiscal Deficit is the difference between the total income of the government (total taxes and non-debt capital receipts) and its total expenditure.
  • A fiscal deficit situation occurs when the government’s expenditure exceeds its income.
  • This difference is calculated both in absolute terms and also as a percentage of the Gross Domestic Pro
  • The government describes fiscal deficit of India as “the excess of total disbursements from the Consolidated Fund of India, excluding repayment of the debt, over total receipts into the Fund (excluding the debt receipts) during a financial year”.duct (GDP) of the country.
  • A recurring high fiscal deficit means that the government has been spending beyond its means.
  • If the total expenditure of the government exceeds its total revenue and non-revenue receipts in a financial year, then that gap is the fiscal deficit for the financial year.
  • The fiscal deficit is usually mentioned as a percentage of GDP.
  • The government meets fiscal deficit by borrowing money. In a way, the total borrowing requirements of the government in a financial year is equal to the fiscal deficit in that year.


  • Fiscal policy in India is the guiding force that helps the government decide how much money it should spend to support the economic activity, and how much revenue it must earn from the system, to keep the wheels of the economy running smoothly.
  • In recent times, the importance of fiscal policy has been increasing to achieve economic growth swiftly, both in India and across the world. Attaining rapid economic growth is one of the key goals of fiscal policy formulated by the Government of India.
  • Fiscal policy, along with monetary policy, plays a crucial role in managing a country’s economy.
  • Through the fiscal policy, the government of a country controls the flow of tax revenues and public expenditure to navigate the economy.
  • If the government receives more revenue than it spends, it runs a surplus, while if it spends more than the tax and non-tax receipts, it runs a deficit.
  • To meet additional expenditures, the government needs to borrow domestically or from overseas. Alternatively, the government may also choose to draw upon its foreign exchange reserves or print additional money.
  • The government uses both monetary and fiscal policy to meet the county’s economic objectives.
  • The central bank of a country mainly administers monetary policy.
  • In India, the Monetary Policy is under the Reserve Bank of India or RBI.
  • Monetary policy majorly deals with money, currency, and interest rates.
  • On the other hand, under the fiscal policy, the government deals with taxation and spending by the Centre.


  • A banking system in which private banks are required to hold a specified proportion of assets on hand in their banks, to underpin a much larger amount of lending to the bank’s customers.


  • GAAR is General Anti Avoidance Rule and hence it is an anti-tax avoidance regulation.
  • As the name suggests, it is set of laws aimed at curtailing tax avoidance in general.
  • GAAR is set of rules under the Income Tax Act (under the proposed Direct Tax Code) which empowers the revenue authorities to deny tax benefits transactions or arrangements which do not have any commercial substance or consideration other than achieving the tax benefit. 
  • Tax avoidance is deliberate measures to avoid or reduce tax burden by an individual or a company.
  • Tax avoidance, is by and large not defined in taxing statutes.
  • Tax avoidance is, nevertheless, the outcome of actions taken by the assessee, which is not illegal or forbidden by the law as such. The purpose here is to reduce tax burden.
  • Anti-Avoidance Rules are generally existing in many countries in two categories, viz, general and specific.
  • In the case of the former, the legislation will be GAAR whereas in the case of the latter, the legislation is in the form of Specific Avoidance (SAAR).
  • Special rules are targeted at individual, case by case specific provisions.
  • Legislations with respect to general rules are known as GAAR and legislations with respect to special rules are known as SAAR.
  • Double Taxation Avoidance Treaties (DTAAs) and GAAR are two set of regulations on the matter of tax administration.
  • If GAAR is limited to the boundaries of a tax jurisdiction, treaty goes beyond the boundaries of a country.
  • Hence when there is a conflict between the two, which one will override is a big matter.
  • GAAR provisions empower tax authorities to declare any transaction as impermissible avoidance arrangementand determine the tax consequences, if the transaction has been entered into with the main purpose of obtaining a tax benefit and it lacks commercial substance.


  • Generalized System of Preferences (GSP) is a preferential tariff system extended by developed countries to developing countries (also known as preference receiving countries or beneficiary countries).
  • It is a preferential arrangement in the sense that it allows concessional low/zero tariff imports from developing countries.
  • Developed countries including the US, EU, UK, Japan etc., gives GSPs to imports from developing countries. GSP involves reduced/zero tariffs of eligible products exported by beneficiary countries to the markets of GSP providing countries.
  • The objective of GSP was to give development support to poor countries by promoting exports from them into the developed countries. 
  • The products covered under GSP are mainly agricultural products including animal husbandry, meat and fisheries and handicraft products. These products are generally the specialized products of the developing countries.


  • Gilt-edged securities are high-grade bonds issued by certain national governments and private organizations.
  • Securities which have lowest risk
  • g. Government securities Merit Goods: those public goods where a social benefit is more than individual benefit. E.g. primary health, education etc.


  • A statistical measure of inequality. A Gini score of 0 implies perfect equality (in which every individual receives the same income).
  • A Gini score of 1 implies perfect inequality (in which one individual receives all of the income).
  • The index is named after its developer, Corrado Gini, an Italian statistician of the early 20th century. It is typically expressed as a percentage, so a 20 coefficient would be shown as 20%.
  • A wealthy country and a poor country can have the same Gini coefficient, even if the wealthy country has a relatively equal distribution of affluent residents and the poor country has a relatively equal distribution of cash-strapped residents.
  • The Gini index is only as accurate as the gross domestic product (GDP) and income data that a country produces. Many developing nations do not produce accurate or trusted economic data, so the index becomes more of an estimate.
  • There is also a generally negative correlation between Gini coefficients and per-capita GDP, because poorer nations tend to have higher index figures.


  • While implementing the GST in 2017, a major concern of the state governments was the possibility of revenue loss.
  • Several states argued for compensation from the centre if the revenue from GST to them falls than that of the estimated level.
  • The centre initially resisted to compensation but later agreed for the first five years.
  • Main purpose of the compensation clause was to incentivise states to accept and implement the GST. States have to give up the control over their major tax revenues including the state sales tax that are to be merged under GST. Effectively, states had given up their power to impose and collect taxes on goods. Hence, assuring no revenue loss after the implementation of GST became important.
  • In the past, the centre compensated states when the latter introduced Value Added Tax (VAT) in place of state sales tax in 2006. Hence, compensation in case of revenue loss became a conventional clause when the state is undertaking any tax reform at the insistence of the centre.
  • GST Compensation clause was inserted under the GST Act. As per the provisions of Section 7 of the GST (Compensation to States) Act, 2017, loss of revenue to the States on account of implementation of Goods and Services Tax shall be payable during transition period of 5 years.
  • The compensation payable to a State shall be provisionally calculated and released at the end of every two months during transition period of 5 years.
  • GST Cess can be levied on both intra-state and inter-state supply of some goods and services.
  • Since GST Compensation is for five years, the GST Cess will be applicable till July 2022.
  • GST Compensation Cess is imposed as a levy in addition to the regular GST taxes. 
  • GST cess is applicable to a variety of goods or services that are traded either intrastate or interstate trade. Entities that fall under the composition scheme need not pay the cess.
  • The main items that attract the cess are:
  • Pan Masala
  • Aerated waters
  • Tobacco and tobacco products
  • Coal, briquettes and solid fuels made from coal or ignite
  • Motor cars and other motor vehicles
  • Any other supplies as notified from time to time.


  • Gross Domestic Saving is GDP minus final consumption expenditure.
  • It is expressed as a percentage of GDP. Gross Domestic Saving consists of savings of household sector, private corporate sector and public sector. Gross domestic savings had followed a downward trajectory after 2008.
  • The more concerning issue is the perceptible shift of investors’ preference towards physical assets as compared to financial assets.
  • This can be attributable to a rise in inflationary pressures. Gross capital formation is a function gross domestic savings.


  • Gross National Product (GNP) is Gross Domestic Product (GDP) plus net factor income from abroad.
  • GNP measures the monetary value of all the finished goods and services produced by the country’s factors of production irrespective of their location.
  • Only the finished or final goods are considered as factoring intermediate goods used for manufacturing would amount to double counting.
  • It includes taxes but does not include subsidies.


  • Each year, after the Budget is presented in the floor of the Lok Sabha by the Finance Minister, the House has the opportunity to discuss the financial proposals contained in it.
  • The process of deliberations on the Budget sets off with a general discussion followed by the Vote on Account, debating and voting on the Demands for Grants and finally, consideration and passing of the Appropriation and Finance Bills.
  • Guillotine refers to the exercise vide which the Speaker of the House, on the very last day of the period allotted for discussions on the Demands for Grants, puts to vote all outstanding Demands for Grants at a time specified in advance. The aim of the exercise is to conclude discussions on financial proposals within the time specified.
  • All outstanding Demands for Grants must be voted by the House without discussions once the guillotine is invoked.
  • Once the pre-specified time for invoking the guillotine is reached, the member who is in possession of the house at that point in time, is requested by the Speaker to resume his or her seat following which Demands for Grants under discussion are immediately put to vote. Thereafter, all outstanding Demands are guillotined.
  • Invoking the guillotine ensures timely passage of the Finance Bill and the conclusion of debates and discussions on the year’s Budget.


  • The underlying principle of Helicopter Money is that if a central bank wants to raise inflation and output (economic growth) in an economy from a low level, the best way is to give everyone direct money transfers.
  • Here, provision of money into the public is like throwing money from a helicopter.
  • People would see that such a money transfer is a one-off type expansion of the amount of money in circulation.
  • Hence, they will spend it freely and quickly; resulting in increased demand, spending, consumption, investment, employment growth etc.

Economy Terms for UPSC-Part II

Economy Terms for UPSC-Part III

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