For an economy (Rs crore): GVA at factor cost is 900; production taxes are 30 and production subsidies are 10; product taxes are 80 and product subsidies are 20. What is the GVA at market prices (GDP at market prices)?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs 980 crore
Given:
GVA at factor cost = Rs 900 crore
Production taxes = 30
Production subsidies = 10
Product taxes = 80
Product subsidies = 20
GVA at factor cost plus net production taxes gives GVA at basic prices. GVA at basic prices plus net product taxes gives GVA at market prices. “Net” means taxes minus subsidies.
\( \displaystyle \text{GVA at basic prices} = 900 + (30 - 10) = 920 \)
\( \displaystyle \text{GVA at market prices} = 920 + (80 - 20) = 980 \)
GDP at market prices is Rs 980 crore.
Option (3) Rs 1,010 crore — ignores the subsidies.
Option (4) Rs 1,040 crore — adds the subsidies.
NCERT (2026-27): “2.3 Some Macroeconomic Identities … In its revision in January 2015 the CSO replaced GDP at factor cost with the GVA at basic prices, and the GDP at market prices, which is now called only GDP, is now the most highlighted measure. The idea of GVA has already been discussed: it is the value of total output produced in the economy less the value of intermediate consumption (the output which is used in production of output further, and not used in final consumption). Here we discuss the concept of basic prices. The distinction between factor cost, basic prices and market prices is based on the distinction between net production taxes (production taxes less production subsidies) and net product taxes (product taxes less product subsidies). Production taxes and subsidies are paid or received in relation to production and are independent of the volume of production such as land revenues, stamp and registration fee. Product taxes and subsidies, on the other hand, are paid or received per unit or product, e.g., excise tax, service tax, export and import duties etc. Factor cost includes only the payment to factors of production, it does not include any tax. In order to arrive at the market prices, we have to add to the factor cost the total indirect taxes less total subsidies. The basic prices lie in between: they include the production taxes (less production subsidies) but not product taxes (less product subsidies). Therefore in order to arrive at market prices we have to add product taxes (less product subsidies) to the basic prices. As stated above, now the CSO releases GVA at basic prices. Thus, it includes the net production taxes but not net product taxes. In order to arrive at the GDP (at market prices) we need to add net product taxes to GVA at basic prices. Thus, …” “GVA at factor costs + Net production taxes = GVA at basic prices GVA at basic prices + Net product taxes = GVA at market prices …” |