The very basics of Indian economy

Revenue

Revenue receipts	taxes: direct and indirect
Capital receipts	Government bonds, other institution shares

Expenditure

Planned	Roads,infra,schools
Unplanned	subsidy etc

Fiscal deficient : revenue- expenditure

Trade Deficient: imports-exports

Current account deficient : Trade deficient -  remittance

(A remittance is a transfer of money by a foreign worker to an individual in his or her home country)

Balance of payment (BOP) :

summarizes an economy’s transactions with the rest of the world for a specified time period. The balance of payments, also known as balance of international payments, encompasses all transactions between a country’s residents and its nonresidents involving goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts.

Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities (debits) should balance, but in practice this is rarely the case. Thus, the BOP can tell the observer if a country has a deficit or a surplus and from which part of the economy the discrepancies are stemming.

Current account	transactions in goods, services, investment income and current transfers The current account is used to mark the inflow and outflow of goods and services into a country. Earnings on investments, both public and private, are also put into the current account. Receipts from income-generating assets such as stocks (in the form of dividends) and  remittance are also recorded here
Capital account	includes transactions in financial instruments, The capital account is broken down into the monetary flows branching from debt forgiveness, the transfer of goods, and financial assets by migrants leaving or entering a country, the transfer of ownership on fixed assets (assets such as equipment used in the production process to generate income), the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance taxes, death levies and, finally, uninsured damage to fixed assets.
Financial Account	In the financial account, international monetary flows related to investment in business, real estate, bonds and stocks are documented. Also included are government-owned assets such as foreign reserves, gold, special drawing rights (SDRs) held with the International Monetary Fund (IMF), private assets held abroad and direct foreign investment. Assets owned by foreigners, private and official, are also recorded in the financial account.

Foreign Institutional Investors (FIIs): FIIs are foreign entities which are allowed to invest in the Indian share markets and are a major source of liquidity for the stock markets.

Foreign Direct Investment (FDI): FDI which is a direct investment into the country from an entity in another country, either by setting up a new company or by way of a merger, acquisition etc., indicates the positive sentiment of overseas investors on the future business environment of the country.

The economy of India is the tenth-largest in the world by nominal GDP and the third-largest by purchasing power parity (PPP)

GDP is sum of goods and services produced in a country; it is a measure of 'value added' rather than sales; it adds each firm's value added (the value of its output minus the value of goods that are used up in producing it)

• production approach, which sums the outputs of every class of enterprise to arrive at the total.
• The expenditure approach works on the principle that all of the product must be bought by somebody, therefore the value of the total product must be equal to people's total expenditures in buying things.
• The income approach works on the principle that the incomes of the productive factors ("producers," colloquially) must be equal to the value of their product, and determines GDP by finding the sum of all producers' incomes

One of the most reliable methods to measure the GDP is the expenditure approach which totals up the following elements to calculate the GDP:

GDP = C + G + I + NX

where:

“C” = total private consumption in the country

“G” = total government spending

“I” = total investment made by the country’s businesses

“NX” = net exports (calculated as total exports minus total imports)

Annual Financial Statement. statement of estimated receipts and expenditure in respect of every financial year - April 1 to March 31. This statement is the annual financial statement. he annual financial statement is usually a white 10-page document. It is divided into three parts, consolidated fund, contingency fund and public account. 

Consolidated Fund 

no money can be withdrawn from this fund without the Parliament's approval. 

 All revenues raised by the government, money borrowed and receipts from loans given by the government flow into the consolidated fund of India. All government expenditure is made from this fund, except for exceptional items met from the Contingency Fund or the Public Account.

Contingency Fund: The Rs 500-crore fund is at the disposal of the President. Any expenditure incurred from this fund requires a subsequent approval from Parliament and the amount withdrawn is returned to the fund from the consolidated fund. 

Public account :

transactions where the government is merely acting as a banker. 

provident funds, small savings and so on. These funds do not belong to the government. They have to be paid back at some time to their rightful owners. Because of this nature of the fund, expenditure from it are not required to be approved by the Parliament. 

Revenue receipt/Expenditure 

All receipts and expenditure that in general do not entail sale or creation of assets are included under the revenue account. On the receipts side, taxes would be the most important revenue receipt. On the expenditure side, anything that does not result in creation of assets is treated as revenue expenditure. Salaries, subsidies and interest payments are good examples of revenue expenditure

Capital receipt/Expenditure 

All receipts and expenditure that liquidate or create an asset would in general be under capital account. For instance, if the government sells shares (disinvests) in public sector companies, like it did in the case of Maruti, it is in effect selling an asset. The receipts from the sale would go under capital account. On the other hand, if the government gives someone a loan from which it expects to receive interest, that expenditure would go under the capital account. 

Fringe benefit tax (FBT): 

The taxation of perquisites - or fringe benefits - provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax. It was introduced in Budget 2005-06. The government felt many companies were disguising perquisites such as club facilities as ordinary business expenses, which escaped taxation altogether. Employers have to now pay FBT on a percentage of the expense incurred on such perquisites. 

Non-tax revenue 

The most important receipts under this head are interest payments (received on loans given by the government to states, railways and others) and dividends and profits received from public sector companies. 

NOMINAL GDP

Suppose a country's GDP in 1990 was $100 million and its GDP in 2000 was $300 million. Suppose also that inflation had halved the value of its currency over that period. To meaningfully compare its GDP in 2000 to its GDP in 1990, we could multiply the GDP in 2000 by one-half, to make it relative to 1990 as a base year. The result would be that the GDP in 2000 equals $300 million × one-half = $150 million, in 1990 monetary terms. We would see that the country's GDP had realistically increased 50 percent over that period, not 200 percent, as it might appear from the raw GDP data. The GDP adjusted for changes in money value in this way is called the real, or constant, GDP.

PPP exchange rates help to minimize misleading international comparisons that can arise with the use of market exchange rates. For example, suppose that two countries produce the same physical amounts of goods as each other in each of two different years.

The concept is based on the law of one price, where in the absence of transaction costs and official trade barriers, identical goods will have the same price in different markets when the prices are expressed in the same currency

BY NOMINAL GDP

Rank	Country	Region        GDP (Millions of US$)
1	United States	16,244,600
2	China	8,358,400
3	Japan	5,960,180
4	Germany	3,425,956
5	France	2,611,221
6	United Kingdom	2,471,600
7	Brazil	2,254,109
8	Russia	2,029,812
9	Italy	2,013,392
10	India	1,875,213

 BY PPP

Rank	Country	GDP (Billions of US$)
1	United States	16,768.1
2	China	16,149.1
3	India	6,776.0
4	Japan	4,667.6
5	Germany	3,512.8
6	Russia	3,491.6

Inflation:

Wholesale Price Index (WPI) measures the price of a representative basket of wholesale goods including food articles, LPG, petrol, cement, metals, and a variety of other goods. Inflation is determined by measuring in percentage terms, the total increase in the cost of the total basket of goods over a period of time. For a list of what is included in the WPI basket you can view this sample report. 

Now India has adopted new CPI to measure inflation

Consumer Price Index (CPI) -	A measure of price changes in consumer goods and services such as gasoline, food, clothing and automobiles. The CPI measures price change from the perspective of the purchaser.
Producer Price Indexes (PPI)	A family of indexes that measure the average change over time in selling prices by domestic producers of goods and services. PPIs measure price change from the perspective of the seller.

The main problem with stocks and inflation is that a company's returns tend to be overstated. In times of high inflation, a company may look like it's prospering, when really inflation is the reason behind the growth. When analyzing financial statements, it's also important to remember that inflation can wreak havoc on earnings depending on what technique the company is using to value inventory.

Fixed-income investors are the hardest hit by inflation. Suppose that a year ago you invested $1,000 in a Treasury bill with a 10% yield. Now that you are about to collect the $1,100 owed to you, is your $100 (10%) return real? Of course not! Assuming inflation was positive for the year, your purchasing power has fallen and, therefore, so has your real return. We have to take into account the chunk inflation has taken out of your return. If inflation was 4%, then your return is really 6%.

Economic principles of changes in supply and demand:

• Increase in the money supply.
• Decrease in the demand for money.
• Decrease in the aggregate supply of goods and services.
• Increase in the aggregate demand for goods and services.

'DEMAND-PULL INFLATION'

This type of inflation is a result of strong consumer demand. Demand-pull inflation occurs when there is an increase in aggregate demand, categorized by the four sections of the macroeconomy: households, businesses, governments and foreign buyers. When these four sectors concurrently want to purchase more output than the economy can produce, they compete to purchase limited amounts of goods and services. When many individuals are trying to purchase the same good, the price will inevitably increase. When this happens across the entire economy for all goods, it is known as demand-pull inflation.

• An increase in government purchases can increase aggregate demand, thus pulling up prices.
• The depreciation of local exchange rates, which raises the price of imports and, for foreigners, reduces the price of exports. As a result, the purchasing of imports decreases while the buying of exports by foreigners increases, thereby raising the overall level of aggregate demand
•  Rapid overseas growth can also ignite an increase in demand as more exports are consumed by foreigners.
• If government reduces taxes, households are left with more disposable income in their pockets. This in turn leads to increased consumer spending, thus increasing aggregate demand and eventually causing demand-pull inflation.

'COST-PUSH INFLATION'

Cost-push inflation develops because the higher costs of production factors decreases in aggregate supply (the amount of total production) in the economy. Because there are fewer goods being produced (supply weakens) and demand for these goods remains consistent, the prices of finished goods increase (inflation).

Cost-push inflation basically means that prices have been "pushed up" by increases in costs of any of the four factors of production (labor, capital, land or entrepreneurship) when companies are already running at full production capacity. 

From : investopedia, wikipedia and many other sources