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India is a South Asian country that is the
seventh largest in area and has the second
largest population in the world. India has great plains, long coastlines and
majestic mountains.
Thus, the land has abundant resources. Indiashares its borders with China, Bangladesh,
Pakistan, Nepal, Sri Lanka and Myanmar.
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The Indian economy is one of the fastest
growing economies and is the 12th largest in
terms of the market exchange rate. In terms of purchasing power parity, the
Indian economy ranks the fourth largest in the
world. However, poverty still remains a majorconcern besides disparity in income.
India was able to keep its economy growing at
a healthy rate even during the 2007-2009recession, managing a 9.668 % growth rate in
2010
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With the massive growth of the Indian middle
class, this vast country may become Asia's first
major 'buy' economy. In 2010, India's PPP Gross Domestic Product
stood at over $4 trillion, and was the fourth
largest economy by volume. The services sector, backed by the IT revolution,
remained the biggest contributor to the national
GDP, with a contribution of 58.4%.
The industry sector contributed 24.1% and the
agriculture sector contributed 17.5% to the GDP.
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The employment scenario was dominated by the
services sector, creating 62.6% of the jobs for the
467 million workforce. The industry sector contributed 25.8% to the
GDP and employed 20% of the workforce.
The agriculture sector contributed 15.8% to the
GDP and created 17.5% jobs (India Labor Force).
The unemployment rate remained around 10% in
2010. However, rising inflation became a major
concern, and measures to check it are beingimplemented.
In 2010, the rate of inflation was around 8.6%
(India Inflation Rate Change).
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In 2010, the per capita income (PPP) of India
was US$ 3,290.55. According to the World
Bank, India is classed as a low-income
economy.
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Terms related to financial institutions
Monetary policy is the process by which
the monetary authority of a country controls
the supply of money, often targeting a rate
of interest for the purpose ofpromoting economic growth and stability.
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Policy rates
Bank rate:-Bank rate is the minimum rate at whichthe central bank provides loans to the commercialbanks. It is also called the discount rate( 9%).
Repo (Repurchase) rate is the rate at which the RBIlends shot-term money to the banks againstsecurities(8%).
Reverse Repo rate is the rate at which banks parktheir short-term excess liquidity with the RBI (7%).
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Reserve ratios
Cash Reserve Ratio :-All commercial banks are
required to keep a certain amount of its
deposits in cash with RBI (4.75%).
Statutory liquidity ratio is the amount of
liquid assets, such as cash, precious metals or
other approved securities, that a financial
institution must maintain as reserves otherthan the cash with the Central Bank(23%)
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Lending/deposit rates
Base rate:-Banks in India have switched to BaseRate system from Benchmark Prime Lending Rate(BPLR) system from July 01, 2010. it is theminimum rate below that no bank set their
interest rate(10.00%-10.50%).
Saving deposit rate :- 4%
Term Deposit rate:-Interest rate paid by adepository institution on the cash on deposit(8%-9.25%).
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Market trends
Capital market:- it includes BSE SENSEX whichcomposed of 30 stocks and S&P CNX NIFTYincludes 50 stock index.
Government securities market:- 91 TBILLS - 8.2275%
182 T BILLS - 8.2475%
364 TBILLS
8.0601%
Money market :- call rates7.05%-8.15%
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Ministry of Finance:- It is responsible foradministration of finances of the Government. Itis concerned with all economic and financial
matters affecting the country as a wholeincluding mobilization of resources fordevelopment and other purposes. It regulatesexpenditure of the Government including transfer
of resources to the states. This Ministry comprises four departments,
namely:
Economic Affairs
Expenditure Revenue
Disinvestment
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FDI Foreign direct investment (FDI) or foreign investment
refers to the net inflows of investment to acquire alasting management interest (10 percent or more ofvoting stock) in an enterprise operating in an economyother than that of the investor.
It is the sum of equity capital, reinvestment of
earnings, other long-term capital, and short-termcapital as shown in the balance of payments.
It usually involves participation in management, joint-venture, transfer of technology and expertise.
There are two types of FDI: inward foreign directinvestment and outward foreign direct investment,resulting in a net FDI inflow (positive or negative) and"stock of foreign direct investment", which is thecumulative number for a given period.
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A certificate of deposit (CD) is a fixed-deposit
investment option offered by banks and
lending institutions. It offers higher interestrates than conventional savings accounts
because it requires investors to deposit funds
for a specified term ranging from one monthto more than five years. However, like savings
accounts, CDs are a secure form of
investment, as they are insured bygovernment agencies.
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Ad valorem tax:(in Latin: to the value added) -
a tax based on the value (or assessed value) of
property. Ad valorem tax can also be levied on
imported items.
Aggregate demand is the sum of all demand
in an economy. This can be computed by
adding the expenditure on consumer goods
and services, investment, and not exports
(total exports minus total imports).
Aggregate supply is the total value of the
goods and services produced in a country, plus
the value of imported goods less the value of
exports.
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Alternative minimum tax: An IRS mechanism
created to ensure that high-income
individuals, corporations, trusts, and estatespay at least some minimum amount of tax,
regardless of deductions, credits or
exemptions. Average propensity to consume is the
proportion of income the average family
spends on goods and services. Average propensity to save is the proportion
of income the average family saves (does not
spend on consumption).
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Asymmetric Information is where one party in
a transaction has less information than the
other. Balance of Payment is the summation of
imports and exports made between one
countries and the other countries that ittrades with.
Balance of trade: The difference in value over
a period of time between a country's importsand exports.
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Bill of exchange: A written, dated, and signedthree-party instrument containing anunconditional order by a drawer that directs a
drawee to pay a definite sum of money to apayee on demand or at a specified future date.Also known as a draft.
Birth rate: The number of births in a year per
1,000 population. Bond: A certificate of debt (usually interest-
bearing or discounted) that is issued by agovernment or corporation in order to raise
money; the bond issuer is required to pay a fixedsum annually until maturity and then a fixed sumto repay the principal.
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Cartel: An organization of producers seeking
to limit or eliminate competition among its
members, most often by agreeing to restrictoutput to keep prices higher than would occur
under competitive conditions.
Census: Official gathering of informationabout the population in a particular area.
Government departments use the data
collected in planning for the future in suchareas as health, education, transport, and
housing..
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Countervailing duties: duties (tariffs) that are
imposed by a country to counteract subsidies
provided to a foreign producer Currency board: Form of central bank that
issues domestic currency for foreign exchange
at fixed rates. Currency substitution: The use of foreign
currency (e.g., U.S. dollars) as a medium of
exchange in place of or along with the localcurrency (e.g., Rupees).
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Direct investment: Foreign capital inflow in the
form of investment by foreign-based companies
into domestic based companies. Portfolioinvestment is foreign capital inflow by foreign
investors into shares and financial securities. It is
the ownership and management of production
and/or marketing facilities in a foreign country.
Direct tax: A tax that you pay directly, as
opposed to indirect taxes, such as tariffs and
business taxes. The income tax is a direct tax, as
are property taxes.
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Double taxation: Corporate earnings taxed at
both the corporate level and again as a
stockholder dividend Economic growth: Quantitative measure of
the change in size/volume of economic
activity, usually calculated in terms of grossnational product (GNP) or gross domestic
product(GDP).
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Economic growth: An increase in the nation's
capacity to produce goods and services.
Economic infrastructure: The underlyingamount of physical and financial capital
embodied in roads, railways, waterways,
airways, and other forms of transportationand communication plus water supplies,
financial institutions, electricity, and public
services such as health and education.
Economic integration: The merging to various
degrees of the economies and economic
policies of two or more countries in a given
region.
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Exchange control: A governmental policydesigned to restrict the outflow of domesticcurrency and prevent a worsened balance ofpayments position by controlling the amount offoreign exchange that can be obtained or held bydomestic citizens.
Exchange rate: The price of one currency statedin terms of another currency, when exchanged.
Export incentives: Public subsidies, tax rebates,and other kinds of financial and nonfinancial
measures designed to promote a greater level ofeconomic activity in export industries.
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Externalities: A cost or benefit not accounted
for in the price of goods or services. Often
"externality" refers to the cost of pollutionand other environmental impacts.
Fiscal deficit is the gap between the
government's total spending and the sum ofits revenue receipts and non-debt capital
receipts. The fiscal deficit represents the total
amount of borrowed funds required by the
government to completely meet itsexpenditure
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Fixed exchange rate: The exchange value of a
national currency fixed in relation to another
(usually the U.S. dollar), not free to fluctuateon the international money market.
Foreign aid The international transfer of
public funds in the form of loans or grantseither directly from one government to
another (bilateral assistance) or indirectly
through the vehicle of a multilateral assistance
agency like the World Bank.
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Free trade: Free trade in which goods can beimported and exported without any barriers inthe forms of tariffs, quotas, or otherrestrictions.
Free-trade area A form of economicintegration in which there exists free internal
trade among member countries but eachmember is free to levy different externaltariffs against non-member nations.
Fringe benefit: A benefit in addition to salaryoffered to employees such as use ofcompany's car, house, lunch coupons, healthcare subscriptions etc.
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Poverty gap: The sum of the difference
between the poverty line and actual income
levels of all people living below that line. Tax avoidance: A legal action designed to
reduce or eliminate the taxes that one owes.
Tax base: the total property and resourcessubject to taxation.
Tax evasion: An illegal strategy to decrease tax
burden by underreporting income, overstatingdeductions, or using illegal tax shelters.
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WTO: The World Trade Organization is a global
international organization dealing with the
rules of trade between nations. It was set upin 1995 at the conclusion of GATT negotiations
for administering multilateral trade
negotiations.
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