Important economic terms form the foundation of every Economy section in competitive exams — from the simplest definitions of GDP and inflation to the nuanced differences between repo rate and reverse repo rate, or fiscal deficit and primary deficit.
A strong command of economic vocabulary helps students answer not just direct definition questions but also application-based questions in UPSC Prelims, SSC CGL, Banking (IBPS/SBI), RBI Grade B, and State PSC exams. This page gives you a complete, category-wise glossary of all important economic terms with clear definitions, examples, and exam-ready distinctions for 2026.
⚡ Quick Facts
- GDP (Gross Domestic Product) is the total monetary value of all goods and services produced within a country's borders — the most widely used measure of economic size.
- India became the world's 5th largest economy by nominal GDP in 2022, surpassing the United Kingdom — projected to become 3rd largest by 2027–30.
- The RBI uses the Repo Rate as its primary tool to control inflation — set by the 6-member Monetary Policy Committee (MPC) every two months.
- CPI (Consumer Price Index) is India's official inflation measure — the RBI targets 4% CPI inflation with a ±2% tolerance band (2–6% range).
- India's fiscal year runs from April 1 to March 31 — the Union Budget is presented on February 1 each year since 2017.
Do not confuse Fiscal Deficit (total govt borrowing need) with Revenue Deficit (current income-expenditure gap) with Primary Deficit (Fiscal Deficit minus interest payments). These three are consistently tested together. Also: CRR earns no interest; SLR earns interest (on govt securities). And GDP = within borders; GNP = by nationals (adds Indians abroad, subtracts foreigners in India).
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📖 Complete Economic Terms Glossary
| Term ↕ | Category ↕ | Definition | Formula / Key Detail | Exam Angle |
|---|---|---|---|---|
| GDP (Gross Domestic Product) | National Income | Total value of all final goods & services produced within a country's borders in a given period | GDP = C + I + G + (X − M) | Most used measure of economic size; at market prices |
| GNP (Gross National Product) | National Income | Total value of all goods & services produced by a country's residents, including those abroad | GNP = GDP + Net Factor Income from Abroad (NFIA) | GNP includes income of Indians abroad; excludes foreigners in India |
| NDP (Net Domestic Product) | National Income | GDP minus depreciation (consumption of fixed capital) | NDP = GDP − Depreciation | Accounts for wear and tear of capital assets |
| NNP (Net National Product) | National Income | GNP minus depreciation | NNP = GNP − Depreciation | NNP at factor cost = National Income |
| National Income (NI) | National Income | NNP at factor cost; total income earned by a country's residents from productive activities | NI = NNP − Net Indirect Taxes | Also called NNP at Factor Cost |
| Per Capita Income | National Income | National income divided by total population | Per Capita Income = NI / Population | Measure of average living standard |
| GDP at Market Price | National Income | GDP valued at prices paid by consumers; includes indirect taxes, excludes subsidies | GDP(MP) = GDP(FC) + Net Indirect Taxes | Used in national accounts; official GDP figure |
| GDP at Factor Cost | National Income | GDP valued at cost of production; excludes indirect taxes, includes subsidies | GDP(FC) = GDP(MP) − Net Indirect Taxes | Now replaced by GVA in India since 2015 base year revision |
| GVA (Gross Value Added) | National Income | Value of output minus value of intermediate consumption; preferred over GDP at factor cost | GVA = GDP(MP) − Net Taxes on Products | India switched from GDP(FC) to GVA in 2015 base year revision |
| Real GDP | National Income | GDP adjusted for inflation; measures actual volume of output | Real GDP = Nominal GDP / GDP Deflator × 100 | Shows real growth; used to compare across years |
| Nominal GDP | National Income | GDP measured at current prices without adjusting for inflation | — | Inflated by price rises; not ideal for year-on-year comparisons |
| GDP Deflator | National Income | Ratio of Nominal GDP to Real GDP; measures economy-wide price changes | GDP Deflator = (Nominal GDP / Real GDP) × 100 | Broader than CPI; covers all goods in economy |
| Repo Rate | Monetary Policy | Rate at which RBI lends short-term funds to commercial banks against government securities | ~6.50% (2026; verify before exam) | Primary tool to control inflation; raised = credit costlier = inflation falls |
| Reverse Repo Rate | Monetary Policy | Rate at which commercial banks park excess funds with RBI | ~3.35% (linked to repo; verify) | Used to absorb excess liquidity from banking system |
| CRR (Cash Reserve Ratio) | Monetary Policy | Minimum % of a bank's Net Demand and Time Liabilities (NDTL) kept as cash with RBI | ~4% (verify before exam) | No interest paid on CRR; pure liquidity management tool |
| SLR (Statutory Liquidity Ratio) | Monetary Policy | Minimum % of NDTL that banks must maintain in liquid assets (gold, cash, govt securities) | ~18% (verify before exam) | Unlike CRR — includes gold & govt securities; banks earn interest on SLR assets |
| Bank Rate | Monetary Policy | Rate at which RBI lends long-term funds to banks; no collateral required | Linked to MSF rate | Rarely used; signals long-term monetary stance |
| MSF (Marginal Standing Facility) | Monetary Policy | Emergency overnight borrowing rate; banks can borrow above their SLR limit at MSF rate | ~6.75% (repo + 25 bps; verify) | Safety valve for banks; always higher than repo rate |
| LAF (Liquidity Adjustment Facility) | Monetary Policy | RBI framework to manage short-term liquidity via repo and reverse repo operations | Daily open market operations | Repo = inject liquidity; Reverse Repo = absorb liquidity |
| OMO (Open Market Operations) | Monetary Policy | RBI buys/sells govt securities in open market to inject or absorb liquidity | Conducted as needed | Buy govt bonds = inject money; Sell govt bonds = absorb money |
| MPC (Monetary Policy Committee) | Monetary Policy | 6-member committee that sets the repo rate; meets every 2 months | 3 RBI + 3 Govt nominees | Constituted under RBI Act 1934; inflation target = 4% CPI ±2% |
| Inflation Targeting (FIT) | Monetary Policy | RBI's mandate to keep CPI inflation at 4% (with band of 2–6%) | 4% CPI target | Flexible Inflation Targeting adopted 2016; reviewed every 5 years |
| CPI (Consumer Price Index) | Monetary Policy | Measures change in prices of a basket of goods & services consumed by households | Base year: 2012 | Official inflation measure since 2014; replaces WPI for monetary policy |
| WPI (Wholesale Price Index) | Monetary Policy | Measures price change at the wholesale/producer level | Base year: 2011–12 | Used for industrial inflation tracking; no longer primary for monetary policy |
| Core Inflation | Monetary Policy | Inflation excluding food and fuel prices; measures underlying inflation trend | — | More stable than headline CPI; used by RBI for medium-term analysis |
| Headline Inflation | Monetary Policy | Total CPI inflation including food and fuel | — | Official reported inflation figure |
| Stagflation | Monetary Policy | Simultaneous occurrence of high inflation + high unemployment + economic stagnation | — | Classic 1970s oil crisis scenario; difficult to manage with standard policy |
| Fiscal Policy | Fiscal Policy | Government's use of taxation and public spending to influence the economy | Revenue + Expenditure decisions | Expansionary = increase spending / cut taxes; Contractionary = opposite |
| Union Budget | Fiscal Policy | Annual statement of government's expected revenue and expenditure; presented February 1 | — | Presented by Finance Minister in Parliament; requires Lok Sabha approval |
| Revenue Budget | Fiscal Policy | Budget dealing with regular income (taxes, non-tax) and regular expenditure (salaries, subsidies) | — | Does not create assets; recurring in nature |
| Capital Budget | Fiscal Policy | Budget dealing with capital receipts (loans, disinvestment) and capital expenditure (infrastructure) | — | Creates assets; includes Plan expenditure traditionally |
| Fiscal Deficit (FD) | Fiscal Policy | Excess of total expenditure over total revenue receipts, excluding borrowings | FD = Total Expenditure − (Revenue Receipts + Non-debt Capital Receipts) | Key measure of govt borrowing need; FRBM target = 3% of GDP |
| Revenue Deficit (RD) | Fiscal Policy | Excess of revenue expenditure over revenue receipts | RD = Revenue Expenditure − Revenue Receipts | Shows current account imbalance; money spent without creating assets |
| Primary Deficit (PD) | Fiscal Policy | Fiscal deficit minus interest payments on past debt | PD = Fiscal Deficit − Interest Payments | Shows current fresh borrowing need excluding past debt servicing |
| Effective Revenue Deficit (ERD) | Fiscal Policy | Revenue deficit minus grants for capital asset creation | ERD = Revenue Deficit − Grants for Capital Assets | Introduced in 2011–12; more accurate measure than Revenue Deficit |
| FRBM Act | Fiscal Policy | Fiscal Responsibility and Budget Management Act, 2003 — mandates fiscal consolidation | Targets: FD ≤ 3% of GDP; Revenue Deficit = 0 | NK Singh Committee reviewed it in 2017; passed under FM Yashwant Sinha |
| Disinvestment | Fiscal Policy | Government selling its equity stake in public sector enterprises (PSEs/PSUs) | — | Strategic (majority stake sale) vs minority disinvestment |
| Direct Tax | Fiscal Policy | Tax levied directly on income or wealth of individuals/companies; cannot be transferred | Income Tax, Corporate Tax, Wealth Tax | Paid directly to govt; progressive in nature |
| Indirect Tax | Fiscal Policy | Tax levied on goods and services; burden shifted to consumer | GST, Customs Duty, Excise | Regressive in nature; consumer ultimately bears the cost |
| GST (Goods and Services Tax) | Fiscal Policy | Unified indirect tax replacing multiple central and state taxes; introduced July 1, 2017 | 4 slabs: 0%, 5%, 12%, 18%, 28% | Dual GST: CGST + SGST + IGST (inter-state); 101st Constitutional Amendment |
| IGST (Integrated GST) | Fiscal Policy | GST on inter-state supply of goods and services; collected by Centre and shared with states | — | Applies when goods/services cross state borders |
| Consolidated Fund of India | Fiscal Policy | All revenues received, all loans raised, and all loan repayments go here | Article 266 | No money withdrawn without Parliament's approval |
| Contingency Fund | Fiscal Policy | Emergency fund for unforeseen expenditure; operated by President | Article 267; ₹500 crore corpus | Parliament notified after the fact; not a budget appropriation |
| Public Account | Fiscal Policy | Government receives money in trust (provident funds, small savings); not govt's own revenue | Article 266(2) | Does not need Parliament's approval for withdrawal |
| Balance of Trade (BoT) | Trade & BoP | Difference between value of exports and imports of goods (merchandise only) | BoT = Exports − Imports (goods only) | Surplus = exports > imports; Deficit = imports > exports |
| Balance of Payments (BoP) | Trade & BoP | Systematic record of all economic transactions between India and rest of world | Current Account + Capital Account + Financial Account | BoP always balances at zero theoretically |
| Current Account | Trade & BoP | Records trade in goods, services, income flows, and current transfers | Trade Balance + Services + Income + Transfers | Deficit = India spends more abroad than it earns |
| Capital Account | Trade & BoP | Records cross-border movement of capital — FDI, FPI, loans, banking capital | — | Capital account surplus funds current account deficit |
| FDI (Foreign Direct Investment) | Trade & BoP | Long-term investment where a foreign entity acquires controlling interest (10%+ equity) in an Indian enterprise | — | Stable; promotes technology transfer; DPIIT tracks FDI flows |
| FPI / FII (Foreign Portfolio Investment) | Trade & BoP | Short-term investment in stocks, bonds, mutual funds by foreign entities (less than 10% equity) | Formerly called FII (Foreign Institutional Investor) | Volatile; called "hot money"; regulated by SEBI |
| Current Account Deficit (CAD) | Trade & BoP | Excess of current account expenditure over receipts; India typically runs a CAD | CAD = imports of goods + services − exports of goods + services | Financed by capital account surplus; high CAD weakens rupee |
| Remittances | Trade & BoP | Money sent by Indians working abroad to families in India | India is world's largest remittance recipient | Largest source of forex inflow after exports; counted in current transfers |
| Forex Reserves | Trade & BoP | Total foreign currency assets held by RBI (includes gold, SDR, IMF reserve) | ~$600 billion (verify before exam) | Buffer against currency crisis; measured in months of import cover |
| Exchange Rate | Trade & BoP | Price of one currency in terms of another | Floating (market-determined) in India | RBI intervenes to manage excessive volatility; managed float |
| PPP (Purchasing Power Parity) | Trade & BoP | Exchange rate that equalises purchasing power across countries; used for comparing real income | India is 3rd largest economy by GDP (PPP) | Better for comparing living standards than nominal GDP rankings |
| CAC (Capital Account Convertibility) | Trade & BoP | Freedom to convert domestic financial assets to foreign assets at market rates | India has partial CAC; not full CAC | Full CAC debated; Tarapore Committee 1997 and 2006 |
| HDI (Human Development Index) | Development | Composite measure of health (life expectancy), education (schooling), and income (GNI per capita) | Published by UNDP annually in Human Development Report | India ranks ~134 (2023 HDR); Medium Human Development category |
| MPI (Multidimensional Poverty Index) | Development | UNDP/OPHI measure combining 10 indicators across health, education, and living standards | India: ~230 million poor (2023 MPI); declining | Beyond income alone; includes malnutrition, sanitation, schooling |
| NITI Aayog | Development | National Institution for Transforming India; replaced Planning Commission in January 2015 | Chaired by PM; Vice Chairman is effective head | Advisory body; not a funding body; Governing Council includes all CMs |
| Five-Year Plans | Development | India's economic planning model from 1951 to 2017; 12 Five-Year Plans in total | Replaced by 3-year Action Plan + 7-year Strategy in 2017 | First Plan (1951–56) focused on agriculture; ended with 12th Plan (2012–17) |
| Crowding Out | Development | When government borrowing increases interest rates, discouraging private investment | — | High fiscal deficit → high borrowing → high interest rates → less private investment |
| Multiplier Effect | Development | Initial injection of spending causes a larger final increase in economic output | Multiplier = 1 / (1 − MPC) | Government spending multiplier; Keynesian economics |
| MPC (Marginal Propensity to Consume) | Development | Fraction of additional income that is spent on consumption (not saved) | MPC = ΔC / ΔY | High MPC = high multiplier = government spending more effective |
| Base Effect | Development | Distortion in year-on-year data comparison due to an unusually high or low base in prior year | — | Explains why inflation may appear artificially high or low in certain months |
| Laffer Curve | Development | Relationship between tax rates and tax revenue; beyond a point, higher taxes reduce revenue | — | Used to justify tax cuts; supply-side economics argument |
| RBI (Reserve Bank of India) | Institution | Central bank; monetary policy, currency issuance, banking regulation | Est. 1935 (nationalised 1949) | Banker to the government; lender of last resort; headquartered Mumbai |
| SEBI (Securities and Exchange Board of India) | Institution | Regulates securities/stock markets; protects investor interests | Est. 1988 (statutory 1992) | Governs NSE, BSE; headquartered Mumbai |
| IRDAI | Institution | Regulates insurance industry; approves insurance products and grants licences | Est. 1999; Hyderabad | Insurance regulator; headquartered Hyderabad |
| NABARD | Institution | Agricultural finance and rural development; finances RRBs and cooperative banks | Est. 1982; Mumbai | Apex institution for agriculture credit; regulates RRBs |
| IMF (International Monetary Fund) | Institution | Provides emergency financial assistance; promotes international monetary cooperation | Est. 1945; 190 member countries; Washington DC | India's quota ~2.75%; provides SDRs; lender of last resort for countries |
| World Bank (IBRD + IDA) | Institution | Provides long-term development loans; IBRD for middle-income, IDA for poor countries | Est. 1944; Washington DC | IDA is soft loan arm for poor countries; sister institution to IMF |
| WTO (World Trade Organization) | Institution | Governs international trade rules; dispute resolution | Est. 1995; replaced GATT (1947); Geneva | 164 member countries; India is a founding member |
| NDB (New Development Bank) | Institution | BRICS nations' development bank; provides infrastructure and development loans | Est. 2014; Shanghai | Called BRICS Bank; members: India, Brazil, Russia, China, South Africa |
⚖️ Compare Two Economic Terms
📝 Key Notes & Memory Tips
GDP = production within India's borders (includes foreigners; excludes Indians abroad). GNP = GDP + Net Factor Income from Abroad (adds Indians working abroad; subtracts foreigners). NDP = GDP − Depreciation. NNP = GNP − Depreciation. National Income = NNP at Factor Cost = NNP − Net Indirect Taxes. Each step strips out one element — location, depreciation, then taxes.
Repo Rate: RBI lends to banks at this rate against collateral (govt securities); raising it makes borrowing costly → reduces money supply → controls inflation. CRR: % of deposits banks must keep as cash with RBI — no interest earned; increased = less money to lend. SLR: % of deposits banks must hold in liquid assets (gold, cash, govt securities) — banks earn interest on SLR securities. Unlike CRR, SLR funds are not entirely idle.
Fiscal Deficit = total government borrowing need (total expenditure minus all receipts except borrowings). Revenue Deficit = excess of regular expenditure over regular income (consumption without creating assets). Primary Deficit = Fiscal Deficit minus Interest Payments = current year's fresh borrowing, excluding past debt servicing. Primary Deficit = 0 means current tax revenue covers all non-interest expenditure.
India uses CPI (Consumer Price Index, base year 2012) as the official inflation measure for monetary policy since 2014. WPI (Wholesale Price Index, base year 2011–12) measures wholesale-level prices. CPI is more representative of retail consumers; WPI shows manufacturing/trade inflation. The MPC uses CPI to set the repo rate. Before 2014, WPI was the primary measure — this shift is directly tested.
India is the 5th largest economy globally by nominal GDP (surpassed UK in 2022) and the 3rd largest by GDP at Purchasing Power Parity (PPP). By PPP, India surpassed Japan and Germany. India is projected to become the 3rd largest by nominal GDP by 2027–30. Rankings change — always verify the current position before your exam. The PPP vs nominal distinction itself is a frequent exam question.
National Income chain: "GDP → GNP (add NFIA) → NNP (minus Depreciation) → NI (minus Net Indirect Taxes)"
→ Each arrow = one adjustment; G = Gross, N = Net after depreciation
Three deficit types: "FD = Total; RD = Revenue; PD = FD minus Interest"
→ Fiscal Deficit = total borrowing | Revenue Deficit = recurrent gap | Primary Deficit = fiscal deficit minus interest
Monetary policy tools direction: "Raise Repo Rate → Raise Cost of Credit → Reduce Money Supply → Reduce Inflation"
→ Same logic applies to raising CRR or SLR — all contract money supply
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GDP measures the total value of goods and services produced within a country's borders, regardless of who produces them — including output by foreigners in India. GNP = GDP + Net Factor Income from Abroad (NFIA) — it adds income earned by Indians abroad and subtracts income earned by foreigners in India. The key distinction is location (GDP) vs nationality (GNP).
The Repo Rate is set by the Monetary Policy Committee (MPC) of the Reserve Bank of India, which meets every two months. The repo rate is the rate at which RBI lends short-term funds to commercial banks. Raising it makes borrowing more expensive, reducing credit availability and slowing inflation. The MPC targets 4% CPI inflation (±2% band) under India's Flexible Inflation Targeting framework.
Fiscal Deficit is the total excess of government expenditure over total receipts excluding borrowings — it measures the government's total borrowing need. Primary Deficit = Fiscal Deficit minus Interest Payments on past borrowings. Primary Deficit shows the fresh borrowing need of the current year's budget, excluding legacy debt servicing costs. A zero Primary Deficit means current revenues cover all expenditure except interest on past debt.
CRR (Cash Reserve Ratio) is the percentage of a bank's Net Demand and Time Liabilities (NDTL) that must be maintained as cash with the RBI — no interest is earned on it. SLR (Statutory Liquidity Ratio) is the percentage of NDTL that banks must hold in liquid assets — but these can be cash, gold, or government-approved securities, and banks do earn interest on these securities. Both are set by the RBI to manage liquidity.
India is the 3rd largest economy by GDP at Purchasing Power Parity (PPP). PPP adjusts for differences in price levels between countries — a rupee buys more in India than a dollar buys in the USA for the same goods, so India's economy appears larger when adjusted for this. Nominal GDP ranks India 5th (surpassed UK in 2022). PPP is better for comparing real living standards and economic size across countries.
✅ Key Takeaways
❓ Frequently Asked Questions
GDP (Gross Domestic Product) is the total value of all goods and services produced within India's borders in a given period, regardless of who produces them. GNP (Gross National Product) adds the net income earned by Indian nationals abroad and subtracts income earned by foreigners in India — GNP = GDP + NFIA. NNP (Net National Product) = GNP minus depreciation on capital assets. National Income = NNP at Factor Cost = NNP minus Net Indirect Taxes. This chain is one of the most frequently tested sequences in UPSC Economics and Banking exams.
These are all RBI monetary policy tools but serve different purposes. Repo Rate is the rate at which RBI lends money to commercial banks — raising it makes borrowing expensive, reducing money supply and curbing inflation. Reverse Repo Rate is the rate at which banks park excess funds with RBI — raising it encourages banks to park more with RBI, reducing money in the system. CRR (Cash Reserve Ratio) is the percentage of deposits banks must keep as cash with RBI (no interest earned). SLR (Statutory Liquidity Ratio) is the percentage of deposits banks must hold in liquid assets (cash, gold, or govt securities — banks earn interest). Raising any of these contracts money supply; lowering them expands it.
GST (Goods and Services Tax), introduced on July 1, 2017, is a unified indirect tax that replaced over 17 central and state taxes including Central Excise, Service Tax, VAT, and Octroi. It is based on the 101st Constitutional Amendment (2016). GST has four main tax slabs — 0%, 5%, 12%, 18%, and 28%. It works as a dual GST: CGST (Central GST collected by the Centre), SGST (State GST collected by states), and IGST (Integrated GST for inter-state transactions, collected by Centre and shared with states). The GST Council, a constitutional body, decides rates and policies — it is chaired by the Union Finance Minister, with state finance ministers as members.
Economic terms and concepts are tested across virtually all competitive exams — UPSC Prelims (Economy section), SSC CGL (General Awareness), Bank PO and Clerk (Banking Awareness + GA), RBI Grade B (direct Economics), and State PSC exams. Key question types include definitions (GDP, inflation, repo rate), distinctions (fiscal deficit vs revenue deficit vs primary deficit; CRR vs SLR vs repo), current economic data (India's GDP rank, RBI's repo rate, CPI target), regulatory bodies (RBI, SEBI, IRDAI), and policy mechanisms (GST, FRBM). Mastering the terms in this glossary covers the core of any competitive exam's economy section.
