From the following data (Rs crore), calculate GVA at factor cost:
| Item | Amount |
|---|---|
| GDP at market prices | 10,000 |
| Product taxes | 1,200 |
| Product subsidies | 300 |
| Production taxes | 250 |
| Production subsidies | 50 |
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs 8,900 crore
Given:
GDP at market prices = 10,000
Product taxes = 1,200
Product subsidies = 300
Production taxes = 250
Production subsidies = 50
GDP at market prices equals GVA at market prices. Remove net product taxes to reach basic prices, then net production taxes to reach factor cost.
Net product taxes = 1,200 − 300 = 900
Net production taxes = 250 − 50 = 200
GVA at basic prices = 10,000 − 900 = 9,100
GVA at factor cost = 9,100 − 200 = Rs 8,900 crore
Option (2) Rs 8,550 crore — takes out the taxes but forgets to add back the subsidies.
Option (4) Rs 9,100 crore — stops at basic prices.
NCERT (2026-27): “2.2.4 Factor Cost, Basic Prices and Market 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, |