Repo rate
The interest rate at which the RBI lends short-term money to banks. Raise it to cool the economy, cut it to spur borrowing. It's the headline policy lever.
Vocabulary · plain-English economics
Every term, in plain English.
The jargon from the notes, sessions and macro-watch — explained in a line or two, the way he'd put it in class. Search it, or filter by area.
Reverse repo / SDF
What banks earn for parking spare cash with the RBI. The Standing Deposit Facility (SDF) is the modern floor of the rate corridor — no collateral needed.
MSF
Marginal Standing Facility — the emergency window where banks borrow from the RBI above the repo rate. It forms the ceiling of the rate corridor.
LAF corridor
The band the overnight rate moves in: SDF (floor) → repo → MSF (ceiling). Currently about 50 basis points wide. The RBI steers the call rate inside it.
CRR
Cash Reserve Ratio — the slice of deposits banks must keep as cash with the RBI, earning nothing. Raising it pulls money out of the system.
SLR
Statutory Liquidity Ratio — the share of deposits banks must hold in safe assets like government bonds, before lending the rest.
OMO
Open Market Operations — the RBI buying or selling government bonds to add or drain durable liquidity (and nudge yields).
VRR / VRRR
Variable Rate Repo / Reverse Repo — flexible auctions the RBI uses to inject (VRR) or absorb (VRRR) cash and fine-tune the overnight rate.
CPI
Consumer Price Index — the cost of a typical household's basket. The year-on-year change is retail inflation, the RBI's main target (4% ±2%).
WPI
Wholesale Price Index — prices at the producer/wholesale stage. It excludes services and moves before CPI; no longer the policy target.
Core inflation
Inflation stripped of volatile food and fuel. It shows the underlying trend central banks watch through short-term price spikes.
Base effect
When a number looks high or low only because the comparison month a year ago was unusually low or high — an arithmetic illusion, not a new trend.
GDP
Gross Domestic Product — the total value of goods and services an economy produces in a period. The broadest gauge of economic size.
GVA
Gross Value Added — output minus input costs, measured by sector. GDP equals GVA plus net taxes on products; GVA shows where growth comes from.
Potential GDP
What an economy could produce at full, sustainable use of labour and capital. The gap between actual and potential GDP signals slack or overheating.
Fiscal deficit
How much more the government spends than it earns in a year — the gap it must borrow to fill. Watched as a share of GDP.
Revenue deficit
When the government's day-to-day (revenue) spending exceeds its revenue receipts — borrowing to fund consumption, not assets.
Primary deficit
The fiscal deficit minus interest payments. It shows the fresh borrowing need, setting aside the cost of past debt.
Crowding out
When heavy government borrowing pushes up interest rates and squeezes private investment. The opposite — 'crowding in' — can happen when spending boosts demand.
Multiplier
How much total output rises from an initial rise in spending. If people spend a fraction c of extra income, the simple multiplier is 1/(1−c).
Marginal propensity to consume
The share of an extra rupee of income that a household spends rather than saves. Higher MPC means a bigger multiplier.
Paradox of thrift
If everyone saves more at once, demand and incomes fall, so total saving may not rise. Prudent individually, harmful collectively in a slump.
Liquidity trap
When interest rates are so low that extra money is hoarded rather than spent, and rate cuts stop working. Fiscal policy becomes the stronger tool.
IS-LM
A model where the IS curve (goods market) and LM curve (money market) cross to set output and the interest rate in the short run.
IS-MP
A modern update of IS-LM where the central bank sets the interest rate directly (a monetary-policy rule) instead of fixing the money supply.
Phillips curve
The short-run trade-off between unemployment and inflation: lower unemployment tends to push inflation up. It flattens or breaks down over the long run.
NEER
Nominal Effective Exchange Rate — the rupee's value against a trade-weighted basket of currencies, before adjusting for inflation.
REER
Real Effective Exchange Rate — NEER adjusted for relative inflation. It's the truer measure of export competitiveness.
Depreciation
A fall in a currency's market value against others. It makes imports dearer and exports cheaper; sharp, disorderly falls signal stress.
Current account deficit
When a country imports more goods, services and income than it exports — it must attract foreign capital to cover the gap.
Balance of payments
The full record of a country's transactions with the world: the current account (trade, income) plus the capital and financial account.
Impossible trinity
A country can't have all three at once: a fixed exchange rate, free capital flows, and independent monetary policy. Pick two.
G-Sec / bond yield
Government Securities are bonds the state issues to borrow. Their yield is the return to investors and a benchmark for interest rates across the economy.
Quantitative easing
When a central bank creates money to buy bonds and other assets, lowering long-term rates once short-term rates are already near zero.
Fiscal consolidation
Bringing down the deficit and debt over time — through higher revenue or lower spending — to put public finances on a sustainable path.
GST
Goods and Services Tax — a single, nationwide indirect tax that replaced a web of central and state levies, taxing value added at each stage.
Present value
What a future rupee is worth today. Divide by (1+r) once per year of waiting. The discount rate r is the exchange rate between now and later.
NPV
Net present value — present value of a project's cash inflows minus outflows. It equals the project's entire profit after paying money its full rent, which is why the share price should rise by the NPV on announcement.
IRR
Internal rate of return — the discount rate at which a project's NPV is zero. Quietly assumes interim cash flows are reinvested at the IRR itself; treat quoted IRRs accordingly.
Cost of capital
What the firm's money costs — the return its lenders and shareholders could earn elsewhere at similar risk. The hurdle every project must beat.
WACC
Weighted average cost of capital: cost of equity weighted by equity's share of firm value, plus cost of debt weighted by debt's share.
Opportunity cost
What you give up by choosing this over the next-best use — the profit from the project you shut, the deposit rate you forgo. Appears in no ledger; drives every correct decision.
Sunk cost
Money already spent that no current decision can recover. Irrelevant to what you do next, yet managers anchor on it — the disposition effect in a suit.
Hurdle rate
The minimum return a firm demands before approving a project. In practice sits a few points above the cost of capital and moves slowly — Tata Steel targets ~15% ROIC against a ~12% WACC.
Risk premium
The extra return demanded above the arithmetic break-even for bearing uncertainty. Set by the risk-aversion of the marginal investor — the last lender the market needs.
Risk-free rate
The real rate (society's price of impatience) plus expected inflation. Roughly what a government bond pays; the floor under every other return.
Equity
The residual claim — whatever is left after everyone with a promise is paid. No promised return, first hit in a bad year, all the upside in a good one.
Tax shield
The tax saved because interest is deductible. The genuinely free benefit of debt — it scales with borrowing, until distress costs outgrow it.
Modigliani-Miller
With no taxes, no bankruptcy costs and equal access to markets, capital structure doesn't change firm value: debt is cheaper but makes equity dearer, and the two cancel. The pizza doesn't grow when you slice it differently.
Covenant
A contractual restriction lenders write into loans — on dividends, new debt, asset sales — to stop shareholders gambling with the lender's recovery.
Risk shifting
A near-wiped-out equity holder's incentive to bet the lender's money on long shots: downside is already zero, any win is theirs. Also answers to gambling for resurrection, overinvestment, asset substitution.
Debt overhang
Too much debt killing good projects: new money's returns go first to topping up the lender's recovery, so shareholders refuse to fund even sure things. Also called underinvestment.
Buyback
The company purchasing its own shares. Shrinks the share count, so EPS rises even when earnings don't — check the denominator before applauding.
EPS
Earnings per share — profit divided by share count. A ratio with two moving parts; buybacks move the bottom one.
Capital budgeting
The investing decision: which projects to fund. The test is whether expected return clears the hurdle rate.
Enterprise value
The value of the whole firm — equity plus debt (net of cash). What it would cost to own the business outright.
Provisioning
Money a bank must set aside against loans likely to sour. Why banks resist lending fresh money to defaulting borrowers — it's restructuring, and it triggers provisions.
DRHP
Draft Red Herring Prospectus — the document a company files with SEBI before an IPO: business, risks, financials, everything except the price.
Disposition effect
Retail investors' habit of clinging to losers (waiting to 'recover the price paid') and selling winners early. The sunk-cost bias with a demat account.
Corporate veil
The legal separation between a company and its owners that makes liability limited. Courts can 'lift' it — easier against partners in an LLP than against passive shareholders, which is why VCs prefer companies.
Finance profit
Profit after charging the project the full rent on money — the cost of capital on every rupee invested, every year. Sums to exactly the NPV; the purest form of profit.
Marginal investor
The last, most reluctant investor the market still needs to clear. You can't price-discriminate, so their required return sets the price for everyone.
Beta
How much a stock moves when the market moves — covariance over variance, estimated by regression. Beta 2 means twice the market's swing. Only this market sensitivity earns a higher expected return; firm-specific drama does not.
CAPM
Capital Asset Pricing Model: expected return = risk-free rate + beta × market risk premium. Statistically shaky, directionally sound — his verdict: fancier models predict no better, so use the simple one and know its limits.
Duration matching
Pick the government bond whose tenure matches the weighted-average timing of your project's cash flows when choosing the risk-free rate. Cash flows of 10, 10, 110 over three years have a duration of 2.67 — use a 3-year bond.
Interest coverage ratio
EBIT divided by interest expense — can the business's earnings cover its debt obligation? The fallback for pricing credit risk when no rating exists.
Credit rating
An agency's grade (AAA, AA, BBB…) of both a borrower's probability of default and the unpredictability around it. In debt, investors obsess over worst cases — upside is capped — and ratings are how the worst case gets priced.
Terminal value
The value of all cash flows beyond your forecast horizon, usually a growing perpetuity: CF × (1+g)/(r−g). Small changes in g or r swing it violently — most DCF fights are terminal-value fights.
DCF
Discounted cash flow — forecast the free cash flows, discount each at the cost of capital, add them up. The honest way to value anything; every input is an assumption you must defend.
Relative valuation
Valuing your firm off comparables' ratios (PE, EV/EBITDA). Quick, universal — and you are borrowing someone else's assumptions, which may not suit your firm's context. His advice: know the full machinery before trusting the shortcut.
EV/EBITDA
Enterprise value over earnings before interest, tax, depreciation and amortisation. Popular because EBITDA ignores depreciation-policy differences across firms; dangerous for the same reason.
Payback period
Years until cumulative cash flow repays the investment. Used by small, credit-constrained businesses. Two flaws: the cutoff is arbitrary, and everything after payback — often the biggest cash flows — is ignored.
Profitability index
PV of inflows divided by PV of outflows. A ratio version of NPV — appealing like IRR, and like IRR without NPV's direct claim on shareholder value.
APV
Adjusted Present Value — value the firm as if all-equity, then add the tax shield's present value as a separate line. Handy when you know debt levels rather than a target debt ratio.
NOPAT
Net Operating Profit After (actual) Tax — operating cash flow minus the tax actually paid, interest deduction included. Discount at the unlevered rate and the tax benefit of debt is already inside the cash flow.
Intrinsic value
Total equity value (business + non-operating assets) divided by shares outstanding — the number a DCF says a share is worth, as against the number the market is quoting today.
Perpetuity
A cash flow that arrives every period forever. Worth CF/r today — and CF/(r−g) if it grows at g, valid only while g stays below r.
Operating leverage
The share of fixed costs in a firm's cost base. High fixed costs can't be trimmed when demand falls, so bad macro news bites harder — which is why high operating leverage means high beta.
Financial leverage
Debt in the capital structure. It magnifies equity's ups and downs — the levered firm's returns swing wider, correlate harder with the market, and its cost of equity rises accordingly.
LLP
Limited Liability Partnership — taxed once like a partnership, liability limited like a company, says the book. In practice partners count as management, courts lift the veil easily, VCs stay away — which is why start-ups are rarely LLPs.
Limited liability
A shareholder's personal assets are beyond the company's creditors. Real in the textbook; in practice lenders reach for personal guarantees and fraud allegations — his verdict: 'an overhyped idea.'
Wilful defaulter
A borrower classified as able to repay but choosing not to (or diverting funds). The tag lets lenders pursue promoters personally — one of the standard routes around limited liability.
Free cash flow
Cash the business actually generates: after-tax operating income, add back depreciation, subtract capex and the increase in working capital. To equity: subtract net debt payments too.
Capital adequacy
The regulator's minimum share of equity in a bank's funding. Raise it and the bank's cost of capital rises — and lending rates follow. 'We have to do the calculation,' as the SBI Chairman said.
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