Indian Economy excerpts

Tax buoyancy indicates the responsiveness of tax revenue growth with GDP growth rate. It shows how tax revenue changes in response to a given change in GDP.

Tax elasticity is tax revenue change in response to a change in tax rate.

Taxable capacity is the ability of an economy to contribute to taxes without much distortion in economic activities.

The Laffer curve as a tax policy instrument; advocates:==>Optimization of tax rate and maximization of tax revenue

Crowding-out effect implies that==>Excess government expenditure

Green field FDI means a foriegn company setting up a fresh plant and machinery in India. On the other hand, take over of an existing domestic compnay is called brownfield FDI.

Foriegn exchange reserves are kept at Banking Department whereas the reserves under Minimum Reserves are kept at Issue Department.


Opportunity cost is the income foregone from the next best altenative. For example, I am thinking about several options while investing my income of Rs 1000. If I purchases bonds, I would have made Rs 200 gain. If I have sved it in bank I would have got Rs 180. Knowing all these outcome I ve purcahsed bonds, Saving in the bank was the next best alternative for me. But I ve purchased bonds. While doing so, my opportunity cost is Rs 180 that is the income foregone. It is not a part of cost of production. Hence, opportunity cost is not a cost and it is imaginary.


The IMF has restructured its lending facilities after the global financial crisis of 2007. Its most sought or popular lending scheme to member countries is the SBA(Stand by Arrangment). It is capable of meeting mostof the short term as well as medium term needs of the members. Because of its frequent use by members, it is called as the workhorse facility of the Fund.


As a result of depreciation, Indian commodities become cheaper in the international market and foreign commodities becomes costlier in the domestic market. This will increase India’s exports and reduce imports.On the other hand, the rupee debt value of corporate borrowers increases. This will badly affect them if they have not hedged against exchange rate risks.On the trade front, higher price for imports causes price rise of imported goods and this may push inflation in India.

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