INDIAN ECONOMY

Economic Glossary & Basics -

1. Consumer price index (CPI) - A cost of living index that measures the total cost of goods and
services purchased by a typical consumer within a country.

2. Fixed basket - A set group of goods and services whose quantities do not change over time. This is
used, for instance, in the calculation of the CPI.

3. Gross domestic product (GDP) - The sum of the market values of all final goods and services
produced within a particular country during a period of time.

4. Gross domestic product deflator (GDP deflator) - The ratio of nominal GDP to real GDP for a
given year minus 1. The GDP deflator shows how much of the change in the GDP from a base year is
reliant on changes in the price level.

5. Gross domestic product per capita (GDP per capita) - GDP divided by the number of people in
the population. This measure describes what portion of the GDP an average individual gets.

6. Gross national product (GNP) - An alternative measure of economic activity to GDP. GNP is the
sum of the market values of all goods and services produced by the citizens of a country regardless of their
physical location.

7. Nominal gross domestic product (nominal GDP) - The sum value of goods and services produced
in a country and valued at current prices.

8. Real gross domestic product (real GDP) - The sum value of goods and services produced in a
country and valued at constant prices, calibrated from some base year. Real GDP frees year-to-year
comparisons of output from the effects of changes in the price level.

9. Amalgamation: - The combination of one or more companies into a new entity. An amalgamation is
distinct from a merger because neither of the combining companies survives as a legal entity. Rather, a
completely new entity is formed to house the combined assets and liabilities of both companies.

10. Arbitrage :- The simultaneous purchase and sale of an asset in order to profit from a difference in the
price. It is a trade that profits by exploiting price differences of identical or similar financial instruments,
on different markets or in different forms. Arbitrage exists as a result of market inefficiencies; it provides
a mechanism to ensure prices do not deviate substantially from fair value for long periods of time.

11. Arbitration :- Where there is an industrial dispute, the Arbitration comes to the force. The judgement
is given by the Arbitrator. Both the parties have to accept and honour the Arbitration. Arbitration is the
settlement of labour disputes that takes place between employer and the employees.

12. Auction :- When a commodity is sold by auction, the bids are made by the buyers. Whose ever makes
the highest bid, gets the commodity which is being sold. The buyers make the bid taking into consideration
the quality and quantity of the commodity.
13. Autarchy :- If a country is self-sufficient, it does not require the imports for the country. Autarchy is
an indicator of self-sufficiency. It means that the country itself can satisfy the needs of its population
without making imports from other countries.


14. Balance of Payment :- Balance of payment of a country is a systematic record of all economic
transactions completed between its residents and the residents of remaining world during a year. In other
words, the balance of payment shows the relationship between the one country's total payment to all other
countries and its total receipts from them. Balance of payment is a comprehensive term which includes
both visible and invisible items. Balance of payment not only includes visible export and imports but also
invisible trade like shipping, banking, insurance, tourism, royalty, payments of interest on foreign debts.

15. Balance of Trade :- Balance of trade refers to the total value of a country's export commodities and
total value of imports commodities. Thus balance of trade includes only visible trade i.e., movement of
goods (exports and imports of goods). Balance of trade is a part of Balance of payment statement.

16. Balance Sheet :- Balance sheet is a statement showing the assets and liabilities of a business at a
certain date. Balance sheet helps in estimating the real financial situation of a firm.

17. Bilateralism :- It implies an agreement between two countries to extend to each other specific
privileges in their international trade which are not extended to others.

18. Black Money :- It is unaccounted money which is concealed from tax authorities. All illegal economic
activities are dealt with this black Money. Hawala market has deep roots with this black money. Black
money creates parallel economy. It puts an adverse pressure on equitable distribution of wealth and
income in the economy.

19. Blue Chip:- It is concerned with such equity shares whose purchase is extremely safe. It is a safe
investment. It does not involve any risk.

20. Blue Collar Jobs :- These Jobs are concerned with factory. Persons who are unskilled and depend
upon manual jobs that require physical strain on human muscle are said to be engaged in Blue Collar
Jobs. In the age of machinery, such Jobs are on the decline these days.

21. Brain-Drain:- It means the drift of intellectuals of a country to another country. Scientists, doctors
and technology experts generally go to other prominent countries of the world to better their lot and earn
huge sums of money. This Brain-Drain deprives a country of its genius and capabilities.

22. Capital Budgeting :- The process in which a business determines whether projects such as building a
new plant or investing in a long-term venture are worth pursuing. Oftentimes, a prospective project's
lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet
a sufficient target benchmark. Also known as "investment appraisal."

23. Capital-labour Ratio (Capital Intensive):- A business process or an industry that requires large
amounts of money and other financial resources to produce a good or service. A business is considered
capital intensive based on the ratio of the capital required to the amount of labor that is required.

24. Bull Market :- A financial market of a group of securities in which prices are rising or are expected to
rise.

25. Budget Deficit :- Budget may take a shape of deficit when the public revenue falls short to public
expenditure. Budget deficit is the difference between the estimated public expenditure and public revenue.
The government meets this deficit by way of printing new currency or by borrowing.

26. Call Money :- Money loaned by a bank that must be repaid on demand. Unlike a term loan, which has
a set maturity and payment schedule, call money does not have to follow a fixed schedule. Brokerages use

call money as a short-term source of funding to cover margin accounts or the purchase of securities. The
funds can be obtained quickly.

27. Capitalism :- A system of economics based on the private ownership of capital and production inputs,
and on the production of goods and services for profit. The production of goods and services is based on
supply and demand in the general market (market economy), rather than through central planning
(planned economy). Capitalism is generally characterized by competition between producers.

28. Census :- Census gives us estimates of population. Census is of great economic importance for the
country. It tells us the rate at which the total population is increasing among different age groups. In
India census is done after every 10 years.

29. Clearing House :- An agency or separate corporation of a futures exchange responsible for settling
trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery and
reporting trading data. Clearing houses act as third parties to all futures and options contracts - as a
buyer to every clearing member seller and a seller to every clearing member buyer.

30. Collusion :- A non-competitive agreement between rivals that attempts to disrupt the market's
equilibrium. By collaborating with each other, rival firms look to alter the price of a good to their
advantage. The parties may collectively choose to restrict the supply of a good, and/or agree to increase its
price in order to maximize profits.

31. Bankruptcy :- When a court judges that a debtor is unable to make the payments owed to a creditor.
How bankrupts are treated can affect economic growth. If bankrupts are punished too severely, would-be
entrepreneurs may be discouraged from taking the financial risks needed to make the most of their ideas.

32. Basis point:- A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial
instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and
the yield of a fixed-income security.

33. Barriers to entry :- The existence of high start-up costs or other obstacles that prevent new
competitors from easily entering an industry or area of business. Barriers to entry benefit existing
companies already operating in an industry because they protect an established company's revenues and
profits from being whittled away by new competitors.

34. Closed economy: - An economy that does not take part in inter-national trade; the opposite of an
OPEN ECONOMY. At the turn of the century about the only notable example left of a closed economy is
North Korea

35. Communism :- Communism is a political and economic system in which the state makes the major
economic decision State owns the bulk of capital assets. Responsibility for production and distribution lies
with the state in this system.

36. Core Sector :- Economy needs basic infrastructure for accelerating development. Development of
infrastructure industries like cement, iron and steel, petroleum, heavy machinery etc. can only ensure the
development of the economy as a whole. Such industries are core sector industries.

37. Cost-push Inflation :- It arises due to an increase in production cost. Such type of inflation is caused
by three factors : (i) an increase in wages, (ii) an increase in the profit margin and (iii) imposition of heavy
taxation.


38. Credit Squeeze :- Monetary authorities restrict credit as and when required. This credit restriction is
called credit squeeze. Monetary authorities adopt the policy of credit squeeze to control inflationary
pressure in the economy.

39. Custom Duty (Import Duty):- Custom duty is a duty that is imposed on the products received from
exporting nations of the world. It is also called protective duty as it protects the home industries.

40. Commodity :- A comparatively homogeneous product that can typically be bought in bulk. It usually
refers to a raw material - oil, cotton, cocoa, silver - but can also describe a manufactured product used to
make other things

41. Complementary goods :- Complementary goods: two products, for which an increase (or fall) in
DEMAND for one leads to an increase (fall) in demand for the other. Complements are the opposite of
SUBSTITUTE GOODS.

42. Consumption :- The process in which the substance of a thing is completely destroyed, used up, or
incorporated or transformed into something else. Consumption of goods and services is the amount of them
used in a particular time period.

43. Cost of capital :- Opportunity cost of funds employed in a business; the rate of return investors could
earn if an alternative investment avenue (usually time deposit) was chosen.

44. Crony capitalism :- An economy that is nominally free-market, but allows for preferential regulation
and other favorable government intervention based on personal relationships. In such a system, the false
appearance of "pure" capitalism is publicly maintained to preserve the exclusive influence of well-
connected individuals.

45. Credit crunch :- Money market situation in which loans are hard to get. Credit crunch occurs usually
when a government tries to control inflation by imposing restrictions on lendings to consumers and small
businesses. Also called credit squeeze.

46. Debt: - A duty or obligation to pay money, deliver goods, or render service under an express or implied
agreement. One who owes, is a debtor or debitor; one to whom it is owed, is a debtee, creditor, or lender.

47. Debt-equity ratio :- Measure of a firm's leverage or gearing and its capacity for debt repayment, it
indicates proportion of firm's total capital contributed by trade creditors and lenders.

48. Deflation :- Downturn in an economic cycle caused by circumstances, or brought about by government
policies. Deflation is opposite of inflation and is characterized by (1) increase in citizens' purchasing power
due to the falling prices, (2) decrease in wages, or slowdown in their increase, due to falling levels of
employment, (3) decrease in availability of credit due to higher interest rates and/or restricted money
supply, and (4) decrease in imports due to lack of demand.

49. Demand :- Desire for certain good or service supported by the capacity to purchase it. The aggregate
quantity of a product or service estimated to be bought at a particular price.

50. Dumping: - Exporting goods at prices lower than the home-market prices. In price-to-price dumping,
the exporter uses higher home-prices to supplement the reduced revenue from lower export prices. In
price-cost dumping, the exporter is subsidized by the local government with duty drawbacks, cash
incentives, etc. Dumping is legal under GATT (now WTO) rules unless its injurious effect on the importing
country's producers can be established.


51. Economies of scale: - The cost advantage that arises with increased output of a product. Economies
of scale arise because of the inverse relationship between the quantity produced and per-unit fixed costs;
i.e. the greater the quantity of a good produced, the lower the per-unit fixed cost because these costs are
shared over a larger number of goods. Economies of scale may also reduce variable costs per unit because
of operational efficiencies and synergies. Economies of scale can be classified into two main types: Internal
arising from within the company; and External arising from extraneous factors such as industry size.

52. Elasticity :- Measure of the responsiveness of demand and supply of a good or service to an increase
or decrease in its price.

53. Economic equilibrium :- economic equilibrium is a state where economic forces such as supply and
demand are balanced and in the absence of external influences the (equilibrium) values of economic
variables will not change.

54. Devaluation: - A deliberate downward adjustment to the value of a country's currency, relative to
another currency, group of currencies or standard. Devaluation is a monetary policy tool of countries that
have a fixed exchange rate or semi-fixed exchange rate. It is often confused with depreciation, and is in
contrast to revaluation.

55. Giffen Good: - Giffen good is a product that people consume more of as the price risesviolating the
law of demand. Normally, as the price of goods rises, the substitution effect makes consumers purchase
less of it, and more of substitute goods. In the Giffen goods situation, the income effect dominates, leading
people to buy more of the goods, even as its price rises.

56. Hot money: - Money that flows regularly between financial markets as investors attempt to ensure
they get the highest short-term interest rates possible. Hot money will flow from low interest rate yielding
countries into higher interest rates countries by investors looking to make the highest return. These
financial transfers could affect the exchange rate if the sum is high enough and can therefore impact the
balance of payments.

57. Human Development Index: - Global index utilize to rank the development of countries by
examining the achievements of the inhabitants of the country. The index factors in three important
elements: standard of living, life expectancy, and literacy level.

58. Inferior good: - In economics, an inferior good is a good that decreases in demand when consumer
income rises.

59. Inflation: - inflation is a sustained increase in the general price level of goods and services in an
economy over a period of time.

60. Investment: - investment is putting money into an asset with the expectation of capital appreciation,
dividends, and/or interest earnings. This may or may not be backed by research and analysis.

61. Leverage: - leverage is a general term for any technique to multiply gains and losses. Most often this
involves buying more of an asset by using borrowed funds. The belief is that the income from the asset will
more than pay for the cost of borrowing.

62. LIBOR: - The London Interbank Offered Rate is the average interest rate estimated by leading banks
in London that they would be charged if borrowing from other banks. It is usually abbreviated to Libor .

63. Dividend :- Dividend is the amount which the company distributes to shareholders when the profits of
the company are calculated by the board of directors.


64. Liquidity :- Assets which can easily be converted into cash money are said to have liquidity.

65. Lock-in :- Period during which a loan cannot be paid-off earlier than scheduled without incurring
penalties. Its objective is to generate a certain minimum return on the sums advanced that covers the
lender's lending and loan administration expenses.

66. Purchasing power parity :- Purchasing Power Parity (PPP) is a component of some economic
theories and is a technique used to determine the relative value of different currencies.

67. Monopoly: - Monopoly refers to that market structure where there is only one seller in the market
who controls the entire market supply and no substitute of the product is available in the market.

68. Oligopoly: - Oligopoly is that form of imperfect competition in which there are only a few firms in the
industry (or group) producing either homogeneous products or may be having product differentiation in a
given line of production.

69. Rationing: - Rationing is the controlled distribution of scarce resources, goods, or services. Rationing
controls the size of the ration, one's allotted portion of the resources being distributed on a particular day
or at a particular time.

70. Regressive tax: - A regressive tax is a tax imposed in such a manner that the tax rate decreases as
the amount subject to taxation increases. there is an inverse relationship between the tax rate and the
taxpayer's ability to pay as measured by assets, consumption, or income.

71. Risk: - The probability that an actual return on an investment will be lower than the expected return.
Financial risk is divided into the following categories: Basic risk, Capital risk, Country risk, Default risk,
Delivery risk, Economic risk, Exchange rate risk, Interest rate risk, Liquidity risk, Operations risk,
Payment system risk, Political risk, Refinancing risk, Reinvestment risk, Settlement risk, Sovereign risk,
and underwriting risk.

72. Special Drawing Rights (SDRs) :- An international type of monetary reserve currency, created by
the International Monetary Fund (IMF) in 1969, which operates as a supplement to the existing reserves
of member countries. Created in response to concerns about the limitations of gold and dollars as the sole
means of settling international accounts, SDRs are designed to augment international liquidity by
supplementing the standard reserve currencies.

73. Stagflation: - Is a term used in economics to describe a situation where the inflation rate is high, the
economic growth rate slows down, and unemployment remains steadily high.

74. Trade Union :- It is an organization of employees who join together to further their interests. Trade
Unions negotiate on behalf of their members in collective bargaining with employers, and in the event of a
dispute may put pressure on employers by withdrawing labour (i.e. strike) or by some less drastic form of
action.

75. Scarcity: - Ever-present situation in all markets whereby either less goods are available than the
demand for them, or only too little money is available to their potential buyers for making the purchase.
This universal phenomenon leads to the definition of economics as the "science of allocation of scarce
resources."

76. Securitization :- Securitization is the process of taking an illiquid asset, or group of assets, and
through financial engineering, transforming them into a security.


77. Socialism:- An economic system in which goods and services are provided through a central system of
cooperative and/or government ownership rather than through competition and a free market system.

78. Sovereign risk :- The RISK that a GOVERNMENT will default on its DEBT or on a loan guaranteed
by it.

79. Speculation :- Speculation is the practice of engaging in risky financial transactions in an attempt to
profit from short or medium term fluctuations in the market value of a tradable good such as a financial
instrument, rather than attempting to profit from the underlying financial attributes embodied in the
instrument such as capital gains, interest, or dividends.

80. Transfer pricing: - Transfer pricing is a profit allocation method used to attribute a multinational
corporation's net profit (or loss) before tax to countries where it does business. Transfer pricing results in
the setting of prices among divisions within an enterprise.

81. VAT (Value Added Tax):- It is levied at each stage in the chain of production and distribution from
raw materials to the final sale based on the value (price) added at each stage. It is not a cost to the
producer or the distribution chain members, and whereas its full brunt is borne by the end consumer, it
avoids the double taxation (tax on tax) of a direct sales tax.

82. Wholesale Price Index: - an index showing the rises and falls of prices of manufactured goods as
they leave the factory.

83. Consumer Price Index: - A measure of changes in the purchasing-power of a currency and the rate
of inflation. The consumer price index expresses the current prices of a basket of goods and services in
terms of the prices during the same period in a previous year, to show effect of inflation on purchasing
power.

84. Swap :- Exchange of one type of asset, cash flow, investment, liability, or payment for another.

85. Currency swap: - simultaneous buying and selling of a currency to convert debt principal from the
lender's currency to the debtor's currency.

86. Debt swap:-exchange of a loan (usually to a third world country) between banks.

87. Debt to equity swap: - exchange of a foreign debt (usually to a Third World country) for a stake in
the debtor country's national enterprises (such as power or water utilities).

88. Interest rate swap: exchange of periodic interest payments between two parties (called counter
parties) as means of exchanging future cash flows.

89. Subsidy :- Economic benefit (such as a tax allowance or duty rebate) or financial aid (such as a cash
grant or soft loan) provided by a government to (1) support a desirable activity (such as exports), (2) keep
prices of staples low, (3) maintain the income of the producers of critical or strategic products, (4) maintain
employment levels, or (5) induce investment to reduce unemployment. The basic characteristic of all
subsidies is to reduce the market price of an item below its cost of production.

90. Venture capital: - Startup or growth equity capital or loan capital provided by private investors (the
venture capitalists) or specialized financial institutions (development finance houses or venture capital
firms). Also called risk capital.


91. Volatility: - Rate of change in price over a given period. Expressed often as a percentage, it is
computed as the annualized standard deviation of the percentage change in the daily price.

92. Withholding tax :- Employee income tax (such as PAYE) and other government imposed deductions
from dividends, salaries, wages, and other incomes. Withholding taxes are levied at the point of
disbursement of incomes, and are passed on to the government by the entities collecting them.

93. Yield :- The annual income from a SECURITY, expressed as a percentage of the current market
PRICE of the security. The yield on a SHARE is its DIVIDEND

94. Engel's Law :- Economic theory that the proportion of income spent on food decreases as income
increases, other factors remaining constant. This law does not suggest that money spent on food falls with
increase in income, but instead that the percentage of income spent on food rises slower than the
percentage increase in income. Proposed by the German statistician Ernst Engel (1821-96) in his 1857
paper.

95. Gresham law :- Gresham's law is an economic principle that states: "When a government overvalues
one type of money and undervalues another, the undervalued money will leave the country or disappear
from circulation into hoards, while the overvalued money will flood into circulation." It is commonly stated
as: "Bad money drives out good".

96. Zero Base Budgeting :- Method for preparing cash flow budgets and operating plans which every
year must start from scratch with no pre-authorized funds. ZBB requires each activity to be justified on
the basis of cost-benefit analysis, assumes that no present commitment exists, and that there is no balance
to be carried forward. By forcing the activities to be ranked according to priority, ZBB provides a
systematic basis for resource allocation.