EduGrade Learning / Economy / Glossary
Top 100 Economics Terms, from the basics to the advanced
One hundred terms that carry most of the marks in the economy section of UPSC CSE, RBI Grade B and NABARD Grade A. Every term has a one line definition, a plain English explanation and the exact angle examiners keep testing. Search it, filter it, and tick off what you have learnt.
RBI policy corridor, as it stands
Position as of the middle of 2026. The corridor is fifty basis points wide, with SDF twenty five points below the repo rate and MSF twenty five points above. Policy rates change at every Monetary Policy Committee meeting, so confirm the latest figures on the RBI website before your exam.
How to use this glossary. Start with the Basic filter and clear every term in it before touching the rest. Terms are numbered in the order you should learn them, not alphabetically, because economics vocabulary builds on itself: reserve money has to come before money multiplier, fiscal deficit before primary deficit.
Tick the box beside a term once you can explain it without looking. When the counter stops moving, switch on Not yet learnt and revise only the gaps. Finish with the flashcard drill and the self test at the bottom of the page.
Why a hundred terms, and why these hundred
Most candidates lose marks in the economy section not because a question was hard but because a single word in it was unfamiliar. A question on the difference between GDP at market price and GVA at basic price is trivial once you hold the bridge between the two, and impossible if you do not. The same is true of the gap between depreciation and disinvestment, between devaluation and depreciation of a currency, or between a cess and a surcharge.
The hundred terms below were selected from the chapters that actually appear in question papers: national income accounting, money and banking, monetary policy, inflation, fiscal policy and the budget, financial markets, the external sector, and the applied chapters on agriculture, industry, infrastructure and financial inclusion. Each entry is written to do three jobs at once. The one line definition is what you should be able to reproduce from memory. The explanation is what you need for a descriptive answer. The exam angle is the specific distinction or figure that has been tested before and is likely to be tested again.
Foundations of Economics
The vocabulary every other chapter is built on. Get these right and the rest of the syllabus stops feeling like memorisation.
Scarcity
Human wants are unlimited but the resources available to satisfy them are limited.
Basic
Foundations of Economics
Scarcity is the starting point of the whole subject. Because land, labour, capital and time are finite while wants keep expanding, every society must decide what to produce, how to produce it and for whom. Economics is essentially the study of how these choices are made under this constraint.
Opportunity Cost
The value of the next best alternative that is given up when a choice is made.
Basic
Foundations of Economics
If the government spends an extra one thousand crore on fertiliser subsidy, the opportunity cost is the irrigation canal or rural road that the same money could have built. It is not the money itself, it is the foregone benefit. Every policy debate on subsidy versus capital expenditure is at heart an argument about opportunity cost.
Microeconomics and Macroeconomics
Microeconomics studies individual units such as a household or a firm, macroeconomics studies the economy as a whole.
Basic
Foundations of Economics
Microeconomics asks how a consumer splits income between goods, or how a firm sets output and price. Macroeconomics asks about national output, the general price level, unemployment, the fiscal deficit and the balance of payments. The two are linked because household and firm behaviour depends on the state of the wider economy and the wider economy is the sum of those decisions.
Factors of Production
The four inputs used to produce goods and services: land, labour, capital and entrepreneurship.
Basic
Foundations of Economics
Each factor earns a distinct income: land earns rent, labour earns wages, capital earns interest and entrepreneurship earns profit. The sum of these factor incomes is the basis of the income method of measuring national income. Modern treatments add technology and human capital as separate drivers of growth.
Mixed Economy
An economic system in which both private enterprise and the state take part in production and allocation.
Basic
Foundations of Economics
A free market or capitalist economy leaves allocation largely to prices and private ownership. A command economy places production decisions with the state. India follows a mixed model where the market allocates most resources but the government intervenes through public sector undertakings, regulation, subsidies and welfare transfers to correct market failure and address equity.
Sectors of the Economy
Economic activity is grouped into primary, secondary and tertiary sectors under the three sector hypothesis.
Basic
Foundations of Economics
The primary sector uses natural resources directly, covering agriculture, forestry, fishing and mining. The secondary sector converts raw material into finished goods through manufacturing and construction. The tertiary sector supplies services such as banking, transport, insurance, health and education. Some writers add a quaternary sector for knowledge services and a quinary sector for top level decision making.
Law of Demand and Supply
Other things being equal, quantity demanded falls as price rises, while quantity supplied rises as price rises.
Basic
Foundations of Economics
The demand curve slopes downward and the supply curve slopes upward. Where they cross, the market clears at the equilibrium price and quantity. Exceptions to the law of demand include Giffen goods, where a price rise raises demand for an inferior staple, and Veblen goods, where a high price is itself the attraction.
Price Elasticity of Demand
The responsiveness of quantity demanded to a change in price, measured as percentage change in quantity divided by percentage change in price.
Intermediate
Foundations of Economics
Demand is elastic when the value exceeds one, so a small price rise cuts quantity sharply. It is inelastic when the value is below one, as with salt, fuel or life saving medicine. Necessities tend to be inelastic and luxuries elastic. Governments deliberately tax inelastic goods such as petroleum and tobacco because revenue holds up even when the rate is raised.
National Income Accounting
How a country measures its own output. This chapter supplies the largest single block of prelims questions in the economy section.
Gross Domestic Product
The money value of all final goods and services produced within the geographical boundary of a country in an accounting year.
Basic
National Income Accounting
Three words carry the weight. 'Final' excludes intermediate goods to avoid double counting. 'Within the boundary' means output by foreign owned firms in India counts, while output by Indian firms abroad does not. 'In a year' makes it a flow, not a stock. In India the National Statistical Office releases GDP estimates quarterly and annually, with the financial year running from April to March.
Gross National Product and NFIA
GNP equals GDP plus net factor income from abroad, the income earned by residents abroad minus income earned by foreigners at home.
Intermediate
National Income Accounting
Net factor income from abroad has three parts: net compensation of employees, net income from property and entrepreneurship, and net retained earnings of resident companies operating overseas. For India this figure is usually negative, because payments to foreign investors and lenders exceed the factor income Indians earn abroad. So India's GNP is normally slightly smaller than its GDP.
Nominal GDP and Real GDP
Nominal GDP is measured at current prices, real GDP is measured at the prices of a fixed base year.
Basic
National Income Accounting
Nominal GDP rises both when output grows and when prices rise, so it overstates real progress during inflation. Real GDP strips out the price effect and shows the genuine change in the volume of goods and services. Growth rates quoted in the Economic Survey and by the RBI are real growth rates unless stated otherwise.
GDP Deflator
The ratio of nominal GDP to real GDP, multiplied by one hundred, used as an economy wide measure of the price level.
Advanced
National Income Accounting
Unlike the consumer price index, the deflator covers every good and service that enters GDP, including capital goods and government services, and its weights change every year with the composition of output. It is therefore broader than CPI or WPI but is available with a lag and only quarterly. Economists often watch it because it captures price pressure that a fixed consumption basket misses.
Gross Value Added
The value of output minus the value of intermediate consumption, measured sector by sector.
Intermediate
National Income Accounting
GVA shows how much value each producing unit adds at its own stage. Summing GVA across agriculture, industry and services gives GVA at basic prices. Adding product taxes and subtracting product subsidies converts it to GDP at market prices. Since the 2015 series revision India headlines GDP but publishes sectoral performance through GVA.
Market Price and Factor Cost
Market price includes indirect taxes and excludes subsidies, factor cost is the amount actually received by the factors of production.
Intermediate
National Income Accounting
The link is simple: market price equals factor cost plus indirect taxes minus subsidies. A shirt priced at one thousand rupees including two hundred rupees of GST reflects only eight hundred rupees of factor payments. Aggregates measured at factor cost show what producers earned, those at market price show what buyers paid.
Net Domestic Product and Depreciation
NDP equals GDP minus depreciation, the value of capital consumed during the production process.
Intermediate
National Income Accounting
Machines wear out, buildings age and vehicles lose value. Depreciation, also called consumption of fixed capital, measures this loss. Subtracting it from a gross figure gives the corresponding net figure, so NDP comes from GDP and NNP comes from GNP. Net measures are conceptually better but depreciation is hard to estimate reliably, which is why gross measures dominate published statistics.
Per Capita Income
National income divided by the population, used as a rough indicator of the average standard of living.
Basic
National Income Accounting
Per capita income is an average and therefore hides distribution. Two countries with the same per capita income can differ sharply in inequality and in access to health and education. It also ignores the unpaid household economy and environmental damage. This limitation is exactly why development economists moved to the human development index and multidimensional measures.
Purchasing Power Parity
An exchange rate that equalises the cost of an identical basket of goods across countries, used to compare living standards.
Advanced
National Income Accounting
Market exchange rates are driven by traded goods and capital flows, so they understate incomes in countries where non traded services such as haircuts and domestic help are cheap. PPP conversion corrects for this. India ranks third in the world by GDP at PPP but far lower by GDP at market exchange rates and lower still by per capita income. The World Bank International Comparison Program produces the conversion factors.
Base Year Revision
Periodic updating of the reference year used to compute real GDP and price indices so that weights reflect the current structure of the economy.
Intermediate
National Income Accounting
Prices and consumption patterns change, so an old base year distorts both growth and inflation estimates. India shifted the national accounts base to 2011-12 and moved from factor cost to market price headline GDP at the same time. Base revision also updates the data sources, for example the shift to the MCA-21 corporate database for the private corporate sector.
Circular Flow of Income
The continuous movement of income, output and expenditure between households, firms, government and the rest of the world.
Basic
National Income Accounting
Households supply factors to firms and receive rent, wages, interest and profit. They spend that income on goods and services, which becomes revenue for firms. Savings, taxes and imports are leakages from the flow, while investment, government spending and exports are injections. Equilibrium requires total leakages to equal total injections.
Methods of Measuring National Income
National income can be estimated by the value added method, the income method or the expenditure method.
Intermediate
National Income Accounting
The value added method sums the value added at every stage of production and avoids double counting. The income method adds rent, wages, interest, profit and mixed income of the self employed. The expenditure method adds private consumption, investment, government consumption and net exports. India uses a combination, with the production and income approaches dominant and the expenditure approach used to cross check.
Growth, Development and Welfare
The difference between an economy getting bigger and its people getting better off, and the tools used to measure both.
Economic Growth and Economic Development
Growth is a quantitative rise in national output, development is a broader qualitative improvement in living standards.
Basic
Growth, Development and Welfare
Growth is measured by real GDP or real per capita income. Development adds health, education, nutrition, equality of opportunity, environmental quality and freedom of choice. Growth can occur without development if the gains are captured by a narrow group. Development without growth is unlikely to be sustained because welfare spending needs a resource base.
Human Development Index
A composite index published by UNDP combining life expectancy, education and gross national income per capita at PPP.
Intermediate
Growth, Development and Welfare
The index was introduced in 1990 on the initiative of Mahbub ul Haq, drawing on Amartya Sen's capability approach. Each of the three dimensions is normalised to a value between zero and one and the geometric mean is taken. UNDP also publishes an inequality adjusted HDI, a gender inequality index and a gender development index in the same Human Development Report.
Lorenz Curve
A graph plotting the cumulative share of income against the cumulative share of population, used to show inequality.
Intermediate
Growth, Development and Welfare
The forty five degree diagonal represents perfect equality, where every one percent of the population earns exactly one percent of income. The actual distribution sags below this line. The further the curve bows away from the diagonal, the greater the inequality. The same tool is used for land holdings and wealth as well as income.
Gini Coefficient
A measure of inequality equal to the area between the line of equality and the Lorenz curve, divided by the total area under the line of equality.
Intermediate
Growth, Development and Welfare
The value runs from zero, meaning perfect equality, to one, meaning one person holds all the income. It is often quoted as a percentage between zero and one hundred. Because it is a single summary number, it cannot tell you where in the distribution inequality is concentrated, so it is usually read alongside income share ratios such as the top ten percent share.
Kuznets Curve
The hypothesis that inequality first rises and then falls as an economy develops, tracing an inverted U shape.
Advanced
Growth, Development and Welfare
Simon Kuznets argued that early industrialisation moves workers from low productivity agriculture into higher paid industry, which widens the gap, and that later stages of development narrow it through education, social spending and progressive taxation. The empirical record is mixed, and rising inequality in mature economies has weakened the claim. An environmental Kuznets curve makes a parallel argument about pollution and income.
Multidimensional Poverty Index
A poverty measure based on deprivation across health, education and standard of living rather than income alone.
Intermediate
Growth, Development and Welfare
The global MPI is published by UNDP with the Oxford Poverty and Human Development Initiative and uses ten indicators, including nutrition, child mortality, years of schooling, cooking fuel, sanitation, drinking water, electricity, housing and assets. A household is identified as poor if it is deprived in at least one third of the weighted indicators. NITI Aayog publishes a National MPI for India using twelve indicators aligned to national schemes.
Demographic Dividend
The growth potential created when the working age population is large relative to the dependent population.
Intermediate
Growth, Development and Welfare
A falling birth rate combined with earlier gains in life expectancy produces a temporary bulge in the fifteen to fifty nine age group. More earners and fewer dependents raise savings, investment and output per head. The dividend is not automatic. It requires jobs, skills and health, otherwise the bulge becomes a burden. India's window is generally estimated to run to around the middle of this century, and it varies sharply across states.
Jobless Growth
A situation in which output grows without a matching rise in employment.
Advanced
Growth, Development and Welfare
It happens when growth comes from capital intensive sectors, from productivity gains rather than expanded hiring, or from sectors that employ few workers such as software and finance. India's high growth phases have often produced weak employment elasticity, meaning each percentage point of growth generated less than proportionate job creation. The policy answer usually points to labour intensive manufacturing, construction and skilling.
Money and Money Supply
What counts as money, how the RBI classifies it, and how a small monetary base supports a much larger stock of credit.
Fiat Money
Money that has value because the government declares it legal tender, not because of any intrinsic commodity backing.
Basic
Money and Money Supply
A hundred rupee note is paper worth very little as a commodity. It circulates because the state guarantees it and because everyone expects others to accept it. Since fiat money is not tied to gold or silver, the central bank controls how much exists, which gives it a powerful lever over the economy but also creates the risk of inflation if issuance is careless.
Legal Tender
A medium of payment that the law recognises as valid for settling a debt.
Basic
Money and Money Supply
In India currency notes are unlimited legal tender and can settle a payment of any size. Coins are limited legal tender: coins of fifty paise settle dues up to ten rupees, and coins of one rupee and above settle dues up to one thousand rupees. Cheques and credit cards are not legal tender because a creditor is not legally obliged to accept them.
Gresham's Law
Bad money drives good money out of circulation when both circulate as legal tender at the same face value.
Intermediate
Money and Money Supply
If a silver coin and a paper note both carry a face value of one rupee, people spend the note and hoard or melt the coin, because the coin's commodity value exceeds its face value. Good money is money whose intrinsic value is close to its face value, bad money is money whose intrinsic value is lower. The law is named after Sir Thomas Gresham, a financier in Tudor England.
Monetary Aggregates
The RBI's classification of money supply into M1, M2, M3 and M4 in decreasing order of liquidity.
Intermediate
Money and Money Supply
M1, called narrow money, is currency with the public plus demand deposits plus other deposits with the RBI. M2 adds savings deposits with post office savings banks. M3, called broad money, is M1 plus time deposits with the banking system and is the key policy aggregate. M4 adds total post office deposits excluding National Savings Certificates. Liquidity falls in the order M1, M2, M3, M4.
Reserve Money
Also called M0, high powered money or the monetary base, it is currency in circulation plus bankers' deposits with the RBI plus other deposits with the RBI.
Advanced
Money and Money Supply
Reserve money is the total monetary liability of the central bank. It is called high powered because every rupee of it can support several rupees of broad money once banks lend and deposits are recreated. On the assets side it equals net RBI credit to government, RBI claims on banks and the commercial sector, and net foreign assets, minus net non monetary liabilities.
Money Multiplier
The ratio of broad money to reserve money, showing how much money supply the banking system creates from each unit of base money.
Advanced
Money and Money Supply
It is computed as M3 divided by M0. In the simplest textbook form it equals one divided by the reserve ratio, so a cash reserve ratio of ten percent gives a multiplier of ten. In practice the multiplier is smaller because the public holds cash and banks hold excess reserves. A cut in the cash reserve ratio raises the multiplier and expands credit creation without any new currency being printed.
Velocity of Money
The average number of times a unit of money changes hands to finance transactions in a given period.
Advanced
Money and Money Supply
If an economy has one hundred rupees of money and produces two hundred rupees of output in a year, velocity is two. The Fisher equation of exchange states that money supply multiplied by velocity equals price level multiplied by real output. Monetarists such as Milton Friedman argued that velocity is fairly stable, so changes in money supply feed directly into prices. Velocity typically falls in a downturn as people hold cash.
Cryptocurrency and Central Bank Digital Currency
Cryptocurrency is a privately issued decentralised digital asset. A CBDC is a sovereign digital currency issued by the central bank.
Advanced
Money and Money Supply
Cryptocurrencies run on distributed ledgers and have no issuer liability, no legal tender status in India and high price volatility, which is why the RBI has consistently flagged risks to financial stability and monetary sovereignty. The digital rupee, launched in pilot form in 2022, is different: it is a direct liability of the RBI, legal tender, and exchangeable one for one with cash. It exists in a retail form for the public and a wholesale form for interbank settlement.
Banking and Financial Regulation
Reserve requirements, asset quality and capital rules. The core technical territory for RBI Grade B and every banking exam.
Net Demand and Time Liabilities
The total deposit base of a bank, made up of demand liabilities and time liabilities, net of inter bank claims.
Intermediate
Banking and Financial Regulation
Demand liabilities are payable on demand, such as current and savings account balances, demand drafts and unclaimed deposits. Time liabilities are payable after a fixed period, such as fixed deposits, cash certificates and staff security deposits. NDTL matters because both the cash reserve ratio and the statutory liquidity ratio are calculated as a percentage of it.
Cash Reserve Ratio
The share of net demand and time liabilities that a bank must keep as cash with the Reserve Bank of India.
Basic
Banking and Financial Regulation
CRR is a quantitative instrument. Raising it locks up bank funds and squeezes lending, lowering it releases funds into the system. Banks earn no interest on CRR balances, which makes it a costly tool for them. There is no statutory floor or ceiling on CRR, so the RBI has full discretion. It stands at three percent as of the middle of 2026, after a phased reduction announced in June 2025.
Statutory Liquidity Ratio
The minimum share of net demand and time liabilities that a bank must maintain in cash, gold or approved securities.
Basic
Banking and Financial Regulation
SLR serves two purposes at once. It protects depositors by forcing banks to hold safe liquid assets, and it creates captive demand for government securities, which helps the government borrow cheaply. Because banks earn interest on the government bonds they hold, SLR is less costly to them than CRR. It stands at eighteen percent as of the middle of 2026.
Non-Performing Asset
A loan on which the borrower has not paid interest or principal for ninety days or more.
Intermediate
Banking and Financial Regulation
Once a loan turns non performing, the bank must stop booking income on it and set aside provisions from profit, which directly hurts capital. NPAs are classified as substandard when they have stayed non performing for up to twelve months, doubtful beyond that, and loss assets when recovery is negligible. Gross NPA is the total, net NPA is the amount left after provisioning.
Capital Adequacy Ratio and Basel Norms
The ratio of a bank's capital to its risk weighted assets, prescribed under the Basel framework to absorb losses.
Advanced
Banking and Financial Regulation
Capital is divided into Tier 1, which is equity and disclosed reserves that absorb losses while the bank keeps operating, and Tier 2, which is subordinated debt and other supplementary capital. Basel III raised both the quantity and quality of capital, added a capital conservation buffer, a countercyclical buffer, a leverage ratio and two liquidity standards, the liquidity coverage ratio and the net stable funding ratio. Indian banks follow an RBI prescribed minimum that is higher than the global Basel III floor.
Priority Sector Lending
A regulatory requirement that banks direct a specified share of their credit to sectors that would otherwise be underserved.
Intermediate
Banking and Financial Regulation
The categories include agriculture, micro small and medium enterprises, export credit, education, housing, social infrastructure, renewable energy and weaker sections. Domestic scheduled commercial banks must lend forty percent of adjusted net bank credit to the priority sector, with sub targets inside it. Banks that fall short must place the shortfall with NABARD and other institutions in funds such as the Rural Infrastructure Development Fund.
SARFAESI Act
A 2002 law that lets secured creditors seize and sell a defaulter's collateral without going to court.
Advanced
Banking and Financial Regulation
The full name is the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act. The lender issues a sixty day notice, and if the borrower still does not pay, the lender can take possession of the secured asset, manage it or sell it. The Act also created the framework for asset reconstruction companies and for the Central Registry of Securitisation Asset Reconstruction and Security Interest. It does not apply to agricultural land or to loans below a threshold.
Insolvency and Bankruptcy Code
The 2016 law that created a single time bound process for resolving corporate and individual insolvency.
Advanced
Banking and Financial Regulation
The Code shifted control from the defaulting promoter to a committee of creditors, which appoints a resolution professional and votes on a resolution plan. The corporate insolvency resolution process is meant to conclude within one hundred eighty days, extendable to two hundred seventy, with an outer limit of three hundred thirty days including litigation. If no plan is approved, the company goes into liquidation. The National Company Law Tribunal adjudicates corporate cases and the Insolvency and Bankruptcy Board of India regulates the ecosystem.
Twin Balance Sheet Problem
A situation in which over leveraged corporate borrowers and stressed bank balance sheets reinforce each other and choke credit.
Advanced
Banking and Financial Regulation
Heavy investment in infrastructure and commodities in the boom years left companies with debt they could not service once demand slowed. Their defaults became bank NPAs, and banks short of capital then cut new lending, which further slowed investment. The policy response combined asset quality review, recapitalisation of public sector banks, the Insolvency and Bankruptcy Code and mergers of public sector banks.
Prompt Corrective Action
An RBI supervisory framework that places restrictions on a bank once specified risk thresholds are breached.
Advanced
Banking and Financial Regulation
The framework tracks three parameters: capital adequacy, asset quality measured by net NPA, and leverage. Breaching a threshold triggers mandatory actions such as curbs on dividend payment, branch expansion, management compensation and, at severe levels, on fresh lending. The purpose is corrective rather than punitive, giving a weak bank time to restore health before failure. A parallel framework now applies to large non banking financial companies.
Monetary Policy and the RBI
The policy corridor, the instruments that manage liquidity, and why a repo cut does not always reach the borrower.
Monetary Policy Committee
The six member statutory body that decides India's policy repo rate to meet the inflation target.
Intermediate
Monetary Policy and the RBI
The committee has three RBI members, the Governor as chairperson, a Deputy Governor in charge of monetary policy and one officer nominated by the central board, plus three external members appointed by the central government for four years without reappointment. Decisions are by majority and the Governor holds a casting vote in a tie. It meets at least four times a year, in practice every two months, and the minutes are published on the fourteenth day after the meeting.
Repo Rate
The rate at which the RBI lends short term funds to banks against government securities under a repurchase agreement.
Basic
Monetary Policy and the RBI
The bank sells securities to the RBI and agrees to buy them back later at an agreed price, so the transaction is a collateralised loan. The repo rate is the single most important policy signal in India. Raising it makes borrowing costlier, cools credit and demand, and works against inflation. Cutting it does the opposite. It stands at five point two five percent as of the middle of 2026.
Reverse Repo and Standing Deposit Facility
Instruments through which the RBI absorbs surplus liquidity from banks, with the SDF now acting as the floor of the policy corridor.
Intermediate
Monetary Policy and the RBI
Under reverse repo the RBI borrows from banks against collateral, paying them interest and draining liquidity. The Standing Deposit Facility introduced in April 2022 lets the RBI accept overnight deposits from banks without giving any collateral, which frees its securities holdings for other operations. The SDF rate is set twenty five basis points below the repo rate and has replaced the fixed reverse repo rate as the floor of the corridor. It stands at five percent as of the middle of 2026.
Marginal Standing Facility
An overnight penal window through which banks can borrow from the RBI by dipping into their statutory liquidity ratio holdings.
Intermediate
Monetary Policy and the RBI
MSF is meant for emergency use when a bank has exhausted its other borrowing options. It is priced above the repo rate, currently twenty five basis points above, and banks may use it up to a prescribed percentage of net demand and time liabilities. Because it lets a bank breach the SLR temporarily, MSF acts as a safety valve and as the ceiling of the liquidity corridor.
Bank Rate
The rate at which the RBI is prepared to buy or rediscount bills of exchange or other eligible commercial paper.
Intermediate
Monetary Policy and the RBI
Bank Rate is a long term signalling instrument and unlike repo it involves no sale of securities. Its practical role today is as the penal rate charged on banks that fall short of their CRR or SLR requirement. It is published under section forty nine of the RBI Act 1934 and is kept aligned with the MSF rate, so it moves automatically whenever MSF changes.
Liquidity Adjustment Facility
The set of RBI operations, mainly repo and reverse repo, used to manage day to day liquidity in the banking system.
Intermediate
Monetary Policy and the RBI
LAF lets banks borrow from or lend to the RBI on an overnight or term basis against eligible collateral, which keeps the overnight call money rate close to the policy repo rate. It handles frictional liquidity, meaning short lived mismatches, while open market operations handle durable liquidity. Variable rate repo and variable rate reverse repo auctions are the main operating tools within LAF.
Open Market Operations
The purchase and sale of government securities by the RBI in the open market to inject or absorb durable liquidity.
Intermediate
Monetary Policy and the RBI
Buying securities pays money into the system and expands liquidity. Selling securities withdraws money and contracts it. Unlike CRR, which affects all banks equally by fiat, OMO works through market prices and is more flexible. It is a quantitative instrument and it also influences bond yields, which is why it interacts with government borrowing costs.
Operation Twist
A simultaneous purchase of long term government securities and sale of short term securities, designed to lower long term yields.
Advanced
Monetary Policy and the RBI
The central bank buys at the long end and funds the purchase by selling at the short end, so total liquidity is roughly unchanged but the shape of the yield curve flattens. Lower long term yields reduce the cost of long tenure borrowing for firms and home buyers. The tool first appeared in the United States in 1961 and the RBI has used it in India to improve monetary transmission when repo cuts were not passing through to long rates.
Quantitative Easing
Large scale asset purchases by a central bank to expand money supply when the policy interest rate is already near zero.
Advanced
Monetary Policy and the RBI
When rates cannot fall further, the central bank buys long term government bonds and sometimes private assets, creating new reserves to pay for them. This raises asset prices, lowers long term yields and pushes investors towards riskier lending. The United States, the euro area, the United Kingdom and Japan used it after the 2008 crisis and again during the pandemic. Its risks are asset price inflation, a bloated central bank balance sheet and difficulty in unwinding, called tapering.
Monetary Policy Transmission
The process by which a change in the policy repo rate passes through to deposit rates, lending rates and finally to demand and prices.
Advanced
Monetary Policy and the RBI
Transmission in India was historically slow and incomplete. Banks moved from the prime lending rate to the base rate, then to the marginal cost of funds based lending rate in 2016, and from October 2019 to the external benchmark lending rate, under which floating rate retail and MSME loans must be linked to an external benchmark such as the repo rate or a treasury bill yield. Transmission is still blunted by high small savings rates, the share of fixed rate deposits and stressed bank balance sheets.
Inflation
Measurement, causes and the vocabulary of price movements, from base effect to stagflation.
Inflation
A sustained rise in the general price level, which reduces the purchasing power of money.
Basic
Inflation
Inflation is measured as the percentage change in a price index over a period, usually year on year. A moderate rate is considered healthy because it encourages spending and investment and gives the central bank room to cut rates in a downturn. High inflation acts as a regressive tax, hurting fixed income earners, savers and the poor most, while borrowers and holders of real assets gain.
Consumer Price Index
An index that tracks the retail price of a fixed basket of goods and services bought by households.
Basic
Inflation
CPI is the headline inflation measure for policy in India and is the anchor for the MPC's target. The National Statistical Office compiles CPI Combined along with separate rural and urban series. Food and beverages carry the largest weight, close to forty six percent in the combined index, which is why food price shocks move Indian headline inflation so sharply. Separate CPI series exist for industrial workers, agricultural labourers and rural labourers.
Wholesale Price Index
An index that measures the price of goods traded in bulk at the wholesale level, before they reach the retail stage.
Intermediate
Inflation
WPI is compiled by the Office of the Economic Adviser in the Department for Promotion of Industry and Internal Trade. It has three groups: primary articles, fuel and power, and manufactured products, with manufactured products carrying the largest weight. It excludes services entirely and does not capture retail margins or taxes. Because it is dominated by manufacturing and commodities, WPI reacts faster to global commodity and crude price swings.
Core Inflation
Inflation measured after excluding food and fuel, the two most volatile components of the index.
Intermediate
Inflation
Food and fuel prices swing with the monsoon, harvests and global crude, and those swings often reverse without any change in underlying demand. Stripping them out gives a cleaner view of demand driven price pressure, which is what monetary policy can actually influence. Headline inflation is the full basket. A gap where headline runs well above core signals a supply shock rather than an overheating economy.
Demand-Pull Inflation
Inflation caused by aggregate demand growing faster than the economy's capacity to supply.
Intermediate
Inflation
Too much money chases too few goods. The triggers include rapid credit growth, large government spending, tax cuts, rising exports or a fall in the savings rate. Because the source is excess demand, the standard cure is contractionary policy, meaning higher interest rates or reduced government expenditure. Monetary policy is effective against this type of inflation.
Cost-Push Inflation
Inflation caused by a rise in the cost of inputs such as wages, fuel, raw materials or taxes.
Intermediate
Inflation
A crude oil price spike raises transport and manufacturing costs across the board, and firms pass this on as higher prices even though demand has not risen. Since output tends to fall at the same time, cost-push inflation is harder to fight. Raising interest rates squeezes demand without addressing the supply constraint, which is why supply side measures such as duty cuts and buffer stock releases are used instead.
Base Effect
The influence of the previous year's price level on the current year's inflation reading.
Advanced
Inflation
Inflation is a year on year comparison, so if prices were unusually high in the base period, the current reading looks low even if prices are still rising. If the base was unusually low, the current reading looks high. This is a statistical artefact, not a change in underlying price pressure. Analysts therefore look at month on month and sequential momentum alongside the headline number.
Deflation, Disinflation and Reflation
Three distinct movements: deflation is a fall in the price level, disinflation is a slowing of inflation, reflation is deliberate policy to lift prices out of a slump.
Advanced
Inflation
Deflation means negative inflation, where the price level itself falls, usually accompanied by falling output and rising unemployment. It is dangerous because consumers postpone purchases expecting lower prices, which deepens the downturn, and because real debt burdens rise. Disinflation is benign: prices still rise but more slowly, with no adverse effect on output. Reflation refers to fiscal and monetary stimulus used to raise demand and prices back to a normal level after deflation.
Stagflation and Skewflation
Stagflation is high inflation with stagnant growth and high unemployment. Skewflation is a sharp price rise in one or a few commodities while the general level stays stable.
Advanced
Inflation
Stagflation breaks the usual trade off between inflation and unemployment and leaves policy makers with no clean option, since fighting one worsens the other. The 1970s oil shock is the standard example. Skewflation, a term that entered Indian usage through the Economic Survey 2009-10, describes episodes such as a steep rise in food prices while manufactured goods prices remain flat.
Phillips Curve
A relationship showing an inverse trade off between the rate of inflation and the rate of unemployment in the short run.
Advanced
Inflation
A. W. Phillips observed that periods of low unemployment coincided with faster wage growth. Policy makers read this as a menu of choices. The stagflation of the 1970s broke that reading, and Friedman and Phelps argued that the trade off holds only while inflation is unexpected. In the long run the curve is vertical at the natural rate of unemployment, so persistent attempts to buy lower unemployment produce only higher inflation. A related indicator, the misery index, simply adds the inflation rate to the unemployment rate.
Inflationary and Deflationary Gap
An inflationary gap is the excess of actual aggregate demand over full employment output. A deflationary gap is the shortfall.
Advanced
Inflation
When demand exceeds what the economy can produce at full employment, the excess cannot raise output, so it raises prices. That excess is the inflationary gap. When demand falls short, output and employment fall below potential and the shortfall is the deflationary gap. The concept underlies the idea of the output gap, which the RBI monitors to judge whether inflation is demand driven.
Inflation Targeting
A monetary policy framework in which the central bank publicly commits to a numerical inflation target as its primary objective.
Intermediate
Inflation
India adopted flexible inflation targeting through the Monetary Policy Framework Agreement of 2015 and the amendment of the RBI Act in 2016. The target is four percent consumer price inflation with a tolerance band of two percentage points on either side, set by the government in consultation with the RBI for a five year period. It is called flexible because the RBI must also keep growth in mind. A failure is defined as the average inflation breaching the band for three consecutive quarters, and it obliges the RBI to report to the government.
Fiscal Policy, Budget and Taxation
Deficits, expenditure quality and the tax structure. Budget season questions come almost entirely from here.
Fiscal Policy
Government use of taxation, expenditure and borrowing to influence output, employment and prices.
Basic
Fiscal Policy, Budget and Taxation
Expansionary fiscal policy raises spending or cuts taxes to lift demand in a slowdown. Contractionary fiscal policy does the reverse to cool an overheating economy. In India fiscal policy is set by the Ministry of Finance through the Union Budget, while monetary policy sits with the RBI. Automatic stabilisers such as progressive income tax and employment guarantee spending soften the cycle without any fresh decision.
Fiscal Deficit
The excess of total government expenditure over total receipts excluding borrowings, showing how much the government must borrow in a year.
Basic
Fiscal Policy, Budget and Taxation
The formula is total expenditure minus revenue receipts minus non debt capital receipts. Non debt capital receipts include recovery of loans and disinvestment proceeds. Fiscal deficit is the single most watched fiscal number because it measures the addition to public debt in that year and it influences interest rates, inflation and the sovereign rating. It is expressed as a percentage of GDP.
Revenue Deficit
The excess of revenue expenditure over revenue receipts, indicating that the government is borrowing to meet routine consumption.
Intermediate
Fiscal Policy, Budget and Taxation
Revenue deficit is worrying because it creates no asset in return for the debt. Effective revenue deficit is a refinement introduced in 2011-12: it deducts grants given to states for the creation of capital assets, on the argument that such grants finance capital formation even though the Centre books them as revenue expenditure. A zero effective revenue deficit means all remaining borrowing supports asset creation.
Primary Deficit
Fiscal deficit minus interest payments, showing the current year's fresh borrowing need excluding the cost of past debt.
Intermediate
Fiscal Policy, Budget and Taxation
Interest payments are the legacy of borrowing done in earlier years. Removing them isolates how much of today's gap comes from today's decisions. A primary deficit of zero means the government is borrowing only to pay interest on old debt. A primary surplus means the debt to GDP ratio can fall even while the fiscal deficit remains positive, provided growth exceeds the effective interest rate.
FRBM Act
The Fiscal Responsibility and Budget Management Act 2003, which sets statutory targets for deficits and debt.
Intermediate
Fiscal Policy, Budget and Taxation
The Act requires the Centre to limit the fiscal deficit and to publish medium term fiscal statements with the Budget. Following the N. K. Singh Committee, the framework moved towards debt as the primary anchor, with the general government debt to GDP ratio as the target and the fiscal deficit as the operational target. The Act contains an escape clause allowing deviation in defined circumstances such as national security, calamity, structural reform or a sharp fall in output, which was invoked during the pandemic.
Capital and Revenue Expenditure
Capital expenditure creates assets or reduces liabilities, revenue expenditure meets the routine running cost of government.
Basic
Fiscal Policy, Budget and Taxation
Building a highway, a metro line or a school is capital expenditure. Salaries, pensions, interest payments, subsidies and maintenance are revenue expenditure. Capital spending has a higher multiplier because it raises future productive capacity, which is why the quality of a deficit matters as much as its size. The same distinction applies on the receipts side, where capital receipts include borrowings, disinvestment and loan recoveries.
Direct and Indirect Taxes
A direct tax is paid by the person on whom it is levied. An indirect tax can be shifted to someone else, usually the final consumer.
Basic
Fiscal Policy, Budget and Taxation
Income tax and corporation tax are direct. GST and customs duty are indirect. Direct taxes are progressive because the rate rises with income, so they reduce inequality. Indirect taxes are regressive because a poor household spends a larger share of income on taxed goods. A tax system that leans heavily on indirect taxes raises revenue easily but worsens distribution, which is why the direct to indirect ratio is a standard measure of tax system quality.
Goods and Services Tax
A destination based, value added indirect tax on the supply of goods and services, in force in India since July 2017.
Intermediate
Fiscal Policy, Budget and Taxation
GST replaced a layered system of excise duty, service tax, value added tax, octroi and several cesses with a single tax and an input tax credit chain that removes the cascading of tax on tax. It has a dual structure: Central GST and State GST on intra state supply, and Integrated GST on inter state supply and imports. The GST Council, a constitutional body under Article 279A chaired by the Union Finance Minister, decides rates and rules. Petroleum products, alcohol for human consumption and electricity remain outside GST for now.
Cess and Surcharge
A cess is a tax levied for a specific purpose. A surcharge is a tax on tax, levied on the tax payable.
Intermediate
Fiscal Policy, Budget and Taxation
Both are levied by the Centre and, crucially, neither forms part of the divisible pool shared with states under the Finance Commission award. That is why states object when the Centre raises revenue through cesses rather than through basic rates. A cess must be spent on the stated purpose, for example the Health and Education Cess or the Agriculture Infrastructure and Development Cess. A surcharge carries no such earmarking.
Laffer Curve
An inverted U relationship between the tax rate and tax revenue, implying that beyond a point a higher rate collects less.
Advanced
Fiscal Policy, Budget and Taxation
At a zero rate the government collects nothing. At a hundred percent rate nobody works or declares income, so again it collects nothing. Somewhere in between lies a revenue maximising rate. Beyond that point higher rates push activity into evasion, avoidance or the informal economy. The curve is used to argue for moderate rates and a wider base, though the location of the peak is disputed and hard to estimate.
Crowding Out Effect
The reduction in private investment caused by heavy government borrowing pushing up interest rates.
Advanced
Fiscal Policy, Budget and Taxation
When the government absorbs a large share of available savings, the price of loanable funds rises and private firms find borrowing costlier, so they invest less. The effect is strongest when the economy is near full capacity. In a deep slowdown with idle resources the opposite can happen: public investment raises demand and expectations and pulls private investment in, which is called crowding in. India's debate on capital expenditure led growth turns on which of the two dominates.
Financial Markets
Short term and long term instruments, who issues them, who regulates them and how yields behave.
Money Market and Capital Market
The money market deals in short term funds of up to one year, the capital market deals in medium and long term funds.
Basic
Financial Markets
Money market instruments include treasury bills, call money, commercial paper, certificates of deposit and repo. They are highly liquid and low risk, and the RBI is the principal regulator. The capital market covers equity and long term debt, is regulated by SEBI, and finances investment in fixed assets. The money market manages liquidity, the capital market channels savings into capital formation.
Treasury Bills
Short term debt instruments issued by the Government of India at a discount and redeemed at face value.
Intermediate
Financial Markets
They are issued in tenors of ninety one days, one hundred eighty two days and three hundred sixty four days. They carry no coupon: the return is the difference between the discounted issue price and the face value received at maturity. Because they are sovereign obligations they are treated as risk free, they qualify for SLR, and their yields serve as the benchmark for short term interest rates in the economy.
Commercial Paper and Certificate of Deposit
Commercial paper is an unsecured short term promissory note issued by companies. A certificate of deposit is a negotiable short term deposit receipt issued by banks.
Intermediate
Financial Markets
Commercial paper lets highly rated corporates, primary dealers and financial institutions raise working capital directly from the market at rates below bank lending rates, with tenors from seven days to one year. Certificates of deposit are issued by scheduled commercial banks and select financial institutions, also in dematerialised form, and are freely transferable. Both bypass the traditional bank intermediation channel and deepen the money market.
Government Securities and Bond Yield
Government securities are long term sovereign debt instruments. Yield is the effective return to an investor, and it moves inversely to the bond price.
Advanced
Financial Markets
A bond pays a fixed coupon. If its market price falls, the same coupon represents a higher return, so the yield rises. If demand pushes the price up, the yield falls. The ten year government security yield is India's benchmark long term interest rate and it anchors corporate borrowing costs. The yield curve plots yields across maturities, and an inverted curve, where short rates exceed long rates, is widely read as a recession signal.
Primary Market and Secondary Market
The primary market is where securities are issued for the first time. The secondary market is where existing securities are traded between investors.
Basic
Financial Markets
A company raising fresh capital through an initial public offering, a follow on public offer or a rights issue is operating in the primary market, and the money goes to the company. When those shares later change hands on the stock exchange, the money moves between investors and the company receives nothing. The secondary market matters because the liquidity it provides is what makes investors willing to subscribe in the primary market in the first place.
Derivatives
Financial contracts whose value is derived from an underlying asset such as a share, index, commodity, currency or interest rate.
Advanced
Financial Markets
The four basic types are forwards, futures, options and swaps. A forward is a customised bilateral contract, a future is its standardised exchange traded version, an option gives the right but not the obligation to transact at a set price, and a swap exchanges one stream of cash flows for another. Derivatives are used to hedge risk, but the same leverage makes them powerful tools for speculation, which is why they are closely regulated.
Mutual Funds
Pooled investment vehicles that collect money from many investors and invest it in a diversified portfolio managed by a professional fund manager.
Basic
Financial Markets
Each investor holds units, and the value of a unit is the net asset value, calculated as total assets minus liabilities divided by units outstanding. Funds are classified by asset class into equity, debt and hybrid, and by structure into open ended and close ended. A systematic investment plan allows a fixed sum to be invested at regular intervals, which spreads the entry price over time. Mutual funds in India are regulated by SEBI and organised as trusts with a sponsor, trustee and asset management company.
External Sector and International Economics
Balance of payments, the rupee, capital flows and trade remedies.
Balance of Payments
A systematic record of all economic transactions between residents of a country and the rest of the world in a given period.
Intermediate
External Sector and International Economics
It has two main accounts. The current account records trade in goods and services, primary income such as investment income, and secondary income such as remittances. The capital and financial account records investment flows, loans and changes in reserves. In accounting terms the BoP always balances, because any gap is settled through reserve movements or errors and omissions. A deficit in the current account must be financed by a surplus in the capital account or by drawing down reserves.
Current Account Deficit
A situation where the value of imports of goods and services plus net outgo of income and transfers exceeds the corresponding inflows.
Intermediate
External Sector and International Economics
For India the main driver is the merchandise trade deficit, especially crude oil, gold and electronics imports, which is partly offset by software services exports and remittances. A moderate CAD financed by stable long term flows such as foreign direct investment is manageable and can reflect healthy investment. A wide CAD financed by volatile portfolio flows is fragile, as the taper tantrum episode of 2013 demonstrated.
Capital Account Convertibility
The freedom to convert domestic currency into foreign currency and back for capital account transactions, without regulatory restriction.
Advanced
External Sector and International Economics
India adopted full current account convertibility in 1994 by accepting Article VIII obligations of the IMF, so trade, travel, education and remittance transactions are free. The capital account remains partially convertible, with limits on outward investment by residents under the Liberalised Remittance Scheme and on external commercial borrowing. Caution is deliberate: full convertibility exposes the economy to sudden capital flight, currency crashes and imported volatility, as several East Asian economies discovered in 1997.
Foreign Direct Investment and Portfolio Investment
FDI is investment that acquires a lasting management interest in an enterprise. FPI is investment in financial assets without management control.
Intermediate
External Sector and International Economics
The conventional threshold for FDI is a stake of ten percent or more of equity, along with an intent to participate in management. FDI brings technology, management practice and long term commitment, and is difficult to withdraw quickly. FPI in shares and bonds can be sold and repatriated in days, which is why it is described as hot money. India permits FDI through the automatic route in most sectors and the government route in sensitive ones such as defence beyond a cap, multi brand retail and print media.
NEER and REER
The nominal effective exchange rate is a trade weighted index of a currency against a basket of partner currencies. The real effective exchange rate adjusts that index for relative inflation.
Advanced
External Sector and International Economics
A bilateral rate against the dollar tells you little about overall competitiveness, because trade is spread across many partners. NEER solves this by weighting each partner currency by its share in trade. REER goes further and corrects for price differences, so it measures the true purchasing power and competitiveness of the currency. A REER above one hundred suggests the currency is overvalued and exports are losing price competitiveness.
Exchange Rate Regimes
The system a country uses to determine the external value of its currency, ranging from a fixed peg to a free float.
Intermediate
External Sector and International Economics
Under a fixed regime the central bank commits to a rate and defends it with reserves. Under a free float the market sets the rate. India follows a managed float, where the market determines the rupee but the RBI intervenes to curb excessive volatility rather than to target a level. A deliberate reduction in the official value under a fixed regime is devaluation, and its opposite is revaluation. A market driven fall under a floating regime is depreciation, and its opposite is appreciation. The impossible trinity states that no country can simultaneously have a fixed exchange rate, free capital movement and an independent monetary policy.
Foreign Exchange Reserves
External assets held by the RBI, comprising foreign currency assets, gold, Special Drawing Rights and the reserve tranche position with the IMF.
Intermediate
External Sector and International Economics
Reserves serve three purposes: they finance imports, they let the central bank smooth currency volatility, and they signal creditworthiness to global investors. The standard adequacy measure is import cover, meaning the number of months of imports the reserves can pay for. Reserves rise when the RBI buys dollars from the market, which also injects rupee liquidity, so reserve management and domestic liquidity management are linked.
Dumping and Anti-Dumping Duty
Dumping is exporting a product at a price below its normal value in the home market. An anti-dumping duty is the corrective levy imposed by the importing country.
Advanced
External Sector and International Economics
Dumping harms domestic producers by undercutting them with artificially low prices, and the WTO Anti-Dumping Agreement permits members to respond once injury is established. In India the Directorate General of Trade Remedies investigates and recommends the duty, and the Ministry of Finance imposes it. The duty is a trade remedy, not a protectionist tariff, and it must not exceed the margin of dumping. Countervailing duty is the parallel remedy against subsidised imports, and safeguard duty responds to a sudden import surge.
Sectors, Inclusion and Global Institutions
Agriculture, industry, infrastructure financing, financial inclusion and the multilateral bodies India works with.
Minimum Support Price and Food Security
MSP is the assured price at which government agencies buy specified crops from farmers. Procured grain builds the buffer stock that supports the public distribution system.
Intermediate
Sectors, Inclusion and Global Institutions
The Commission for Agricultural Costs and Prices recommends MSP for twenty two mandated crops plus fair and remunerative price for sugarcane, and the Cabinet Committee on Economic Affairs approves it. Procurement by the Food Corporation of India and state agencies creates buffer stocks, which are held against buffer norms and released through the National Food Security Act 2013 to about two thirds of the population. The system stabilises prices and protects consumption but is criticised for skewing cropping patterns towards rice and wheat and for depleting groundwater.
Index of Industrial Production
A composite index that measures the short term change in the volume of production in mining, manufacturing and electricity.
Intermediate
Sectors, Inclusion and Global Institutions
IIP is compiled monthly by the National Statistical Office with the base year 2011-12. It is classified two ways: by sector into mining, manufacturing and electricity, and by use into primary goods, capital goods, intermediate goods, infrastructure and construction goods, consumer durables and consumer non durables. Manufacturing carries the largest weight. Capital goods output is watched as a lead indicator of investment demand. The eight core industries, which include coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity, account for a little over forty percent of the index.
Public Private Partnership
A long term contractual arrangement in which a private partner finances, builds and operates public infrastructure and is paid through user charges or government annuities.
Advanced
Sectors, Inclusion and Global Institutions
The common models sit on a spectrum of risk sharing. Under build operate transfer the private party takes traffic and revenue risk and recovers cost through tolls. Under engineering procurement and construction the government pays the full cost and takes all risk. The hybrid annuity model splits the difference, with the government funding part of the project cost during construction and paying the balance as annuities linked to performance. Viability gap funding provides a capital grant to make otherwise unviable but socially necessary projects bankable.
Financial Inclusion and JAM Trinity
Financial inclusion is the delivery of affordable banking, credit, insurance and pension services to excluded groups. JAM refers to the linking of Jan Dhan accounts, Aadhaar and mobile numbers.
Intermediate
Sectors, Inclusion and Global Institutions
The Pradhan Mantri Jan Dhan Yojana opened basic savings accounts with no minimum balance, an accident insurance cover through the RuPay card and an overdraft facility. Aadhaar provides unique identity, and mobile connectivity delivers the service. Together they enable direct benefit transfer, which cuts leakage by paying subsidies straight into a beneficiary account. The wider architecture now includes business correspondents, payments banks, small finance banks, the Unified Payments Interface and the account aggregator framework.
Special Drawing Rights and the IMF
The SDR is an international reserve asset created by the International Monetary Fund, whose value is based on a basket of major currencies.
Advanced
Sectors, Inclusion and Global Institutions
The SDR is not a currency and cannot be used directly for payments. It is a claim on the freely usable currencies of IMF members, and it supplements official reserves. The basket comprises the US dollar, the euro, the Chinese renminbi, the Japanese yen and the pound sterling, and the weights are reviewed every five years. The IMF itself, created at Bretton Woods in 1944, provides balance of payments support, surveillance through Article IV consultations and technical assistance, with voting power based on quotas.
World Trade Organization and the World Bank
The WTO administers global trade rules and settles trade disputes. The World Bank Group provides long term development finance and advice.
Intermediate
Sectors, Inclusion and Global Institutions
The WTO was established in 1995 as the successor to the General Agreement on Tariffs and Trade, and it works on consensus with a ministerial conference as its highest decision making body. Its core principles are most favoured nation treatment and national treatment. The World Bank Group has five arms: the International Bank for Reconstruction and Development for middle income countries, the International Development Association for the poorest, the International Finance Corporation for private sector lending, the Multilateral Investment Guarantee Agency for political risk insurance, and the International Centre for Settlement of Investment Disputes.
Flashcard drill
A definition appears, you name the term. This is how the recall works in the exam hall, not the other way round.
Name this term
Press start to begin the drill.
Ten question self test
Every question here has appeared in one form or another in a previous paper. Answer all ten, then check your score.
How to revise a glossary without wasting weeks on it
A glossary is a reference, not a reading list. Reading it end to end feels productive and retains almost nothing. What works is three short passes. In the first pass, cover only the one line definitions and mark every term you cannot already explain. In the second pass, open only the marked ones and read the full explanation and the exam angle. In the third pass, use the flashcard drill, which forces recall in the direction the exam actually asks for: you are given a description and you must supply the term.
Attach a current example to every term as you go. Repo rate becomes concrete when you can name the last three Monetary Policy Committee decisions. Current account deficit becomes concrete when you can quote a recent quarterly figure and say what financed it. This is also what separates a five mark answer from an eight mark answer in RBI Grade B Phase 2: the definition earns the base, the current anchor earns the rest.
One caution on figures. Policy rates, index weights and scheme thresholds change. The definitions in this glossary are stable, but the numbers attached to them need a check against the RBI website, the latest Economic Survey and the current Union Budget before you sit for the paper.
Frequently asked questions
How many economics terms are enough for RBI Grade B and UPSC Prelims?
There is no fixed number, but a working command of about a hundred core terms covers the conceptual base that both papers keep returning to. Prelims tests recognition and exact detail, so figures and definitions matter. RBI Grade B Phase 2 tests application, so you need to be able to use a term in an argument, not just define it. This list is built to serve both.
Should I learn WPI or CPI for the inflation chapter?
Both, and specifically the differences between them. CPI is the policy anchor for the Monetary Policy Committee and includes services. WPI is compiled by the Office of the Economic Adviser, excludes services and reacts faster to global commodity prices. Questions are usually framed around the contrast rather than around either index alone.
Are the policy rates in this glossary current?
The rates quoted reflect the position in the middle of 2026, with the repo rate at 5.25 percent, SDF at 5.00 percent, MSF and Bank Rate at 5.50 percent, CRR at 3.00 percent and SLR at 18.00 percent. Policy rates change at every Monetary Policy Committee meeting, so verify the latest figures on the RBI website before your exam.
What is the fastest way to revise these hundred terms?
Use the level filter. Do all the Basic terms in one sitting to build the frame, then Intermediate, then Advanced. Mark each term as learnt so the counter shows real progress, then switch on the unlearnt filter and revise only what is left. Finish with the self test at the end of the page.
Which chapters carry the highest weight in the economy section?
National income accounting, money and banking, monetary policy, inflation and the fiscal and budget chapter together account for the bulk of questions in most recent papers. The external sector follows. Agriculture, industry and infrastructure appear more often in descriptive papers and in current affairs linked questions than in pure theory questions.
Can I use this glossary for NABARD Grade A and other banking exams?
Yes. The banking, monetary policy, inflation and financial inclusion sections map directly onto the economic and social issues syllabus for NABARD Grade A and onto the general awareness sections of most banking examinations. The agriculture terms are a starting point for NABARD but that paper needs deeper rural and agricultural coverage.
