Q. What is meant by mercy of spiritual master? How to develop gratitude? Can you please explain these in a practical way so that I can apply them in my daily life?
The Spiritual Master is compared to a rain-cloud that brings water from the ocean to extinguish the forest fire of material existence. A person caught in a forest fire cannot take help from the ocean, even if it is nearby. Similarly, the conditioned soul caught in material entanglement is unable to take help of Krishna, even though He is present everywhere, and His instructions are there in Bhagavad-gita for everyone to read. The Spiritual Master, like the rain-cloud, carries the mercy of Krishna and brings it into the life of the disciple in a manner that is most easy to perceive and understand.
The very nature of a bona fide spiritual master is full of mercy, because his whole life is dedicated to distributing the mercy of Krishna. Sri-guru-karuna-sindhu. By placing oneself humbly before the spiritual master, that mercy can act upon one's heart. The most direct form of mercy of the spiritual master is his instructions and teachings.
For example, Srila Prabhupada painstakingly translated and published his books for all of our benefit -- this is his mercy. In his books, he has offered everything necessary for a common man to solve all his material perplexities, and to perfectly fulfill the mission of their life. Studying these books and trying to live by these teachings are expressions of gratitude for his sacrifices. By following the instructions of the spiritual master, one reaps many transcendental benefits -- by utilizing these instructions to serve Krishna better, rather than trying to enjoy these benefits, one can develop gratitude.