Economy Basics: GDP, Inflation, Repo Rate and the Budget
Plain-English explanations of the economic terms most often asked in competitive exams, with key Indian institutions and dates.
Economics questions often test definitions and institutions. Understand each term in one sentence, and you'll answer most of them.
Key terms
| Term | Meaning |
|---|---|
| GDP | the total value of goods and services produced in a country in a period |
| GNP | GDP plus net income from abroad |
| Inflation | a general rise in prices over time |
| Deflation | a general fall in prices |
| Fiscal deficit | government spending minus government revenue (excluding borrowing) |
| Subsidy | financial support from the government to reduce a price |
Monetary policy terms
The Reserve Bank of India (RBI) controls the money supply.
| Term | Meaning |
|---|---|
| Repo rate | the rate at which the RBI lends short-term money to banks |
| Reverse repo rate | the rate at which the RBI borrows from banks |
| CRR (Cash Reserve Ratio) | the share of deposits banks must keep with the RBI in cash |
| SLR (Statutory Liquidity Ratio) | the share of deposits banks must hold in liquid assets |
When the repo rate rises, borrowing becomes costlier, which tends to reduce demand and inflation. When it falls, borrowing gets cheaper.
Institutions
| Institution | Note |
|---|---|
| RBI | India's central bank, established in 1935 |
| SEBI | regulates the securities market |
| NABARD | supports agriculture and rural development |
| NITI Aayog | replaced the Planning Commission in 2015 |
| Finance Commission | recommends sharing of taxes between the Centre and states |
Taxes
- Direct taxes are paid by the person on whom they're levied: income tax, corporate tax.
- Indirect taxes are passed on to consumers: GST (Goods and Services Tax), introduced on 1 July 2017.
The Union Budget
The Budget is presented in Parliament by the Finance Minister, usually on 1 February. It estimates the government's income and spending for the coming financial year, which runs from 1 April to 31 March.
Sectors of the economy
| Sector | Examples |
|---|---|
| Primary | agriculture, mining |
| Secondary | manufacturing, construction |
| Tertiary | services: banking, IT, transport |
Tips
- Learn each term in one sentence.
- Use examples to remember.
- Follow current news about budgets and RBI policy.
Note
Figures such as rates and targets change, so check recent sources for current values.
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