In India petrol is heavily taxed, while cooking gas is subsidised. While moving from NNP at market prices to National Income, the tax on petrol is ________ and the subsidy on cooking gas is ________.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → deducted; added
Moving from market prices to factor cost, indirect taxes are deducted, since they go to the government. Subsidies are added, since they lower the market price below what the factors receive.
NCERT (2026-27): “2.3 Some Macroeconomic Identities It is to be noted that all these variables are evaluated at market prices. Through the expression given above, we get the value of NNP evaluated at market prices. But market price includes indirect taxes. When indirect taxes are imposed on goods and services, their prices go up. Indirect taxes accrue to the government. We have to deduct them from NNP evaluated at market prices in order to calculate that part of NNP which actually accrues to the factors of production. Similarly, there may be subsidies granted by the government on the prices of some commodities (in India petrol is heavily taxed by the government, whereas cooking gas is subsidised). So we need to add subsidies to the NNP evaluated at market prices. The measure that we obtain by doing so is called Net National Product at factor cost or National Income. Thus, NNP at factor cost ≡ National Income (NI ) ≡ NNP at market prices – (Indirect taxes – Subsidies) ≡ NNP at market prices – Net indirect taxes (Net indirect taxes ≡ Indirect taxes – Subsidies)” |