Factor Cost, Basic Prices and Market Prices

In India, GDP at factor cost was previously the primary national income measure, reported by the Central Statistics Office (CSO).

After the January 2015 revision, the CSO changed its reporting standard:

• Now reports GVA at basic prices (replacing GVA at factor cost).
• Now reports GDP at market prices — simply referred to as GDP.

GVA = Total Output − Intermediate Consumption

• Total Output: Value of all goods and services produced.
• Intermediate Consumption: Value of goods and services used up in the production process.
• GVA represents the value added by producers during production.

1. Production Taxes

• Taxes paid in relation to production and not dependent on the quantity produced.
• Examples: Land revenue, stamp duty, registration fees.

2. Product Taxes

• Taxes levied per unit of a good or service.
• Examples: GST (earlier excise duty/service tax), customs duties, export and import duties.

Net Taxes = Taxes − Subsidies

Step 1: From Factor Cost to Basic Prices

GVA at Factor Cost + Net Production Taxes = GVA at Basic Prices

Step 2: From Basic Prices to Market Prices

GVA at Basic Prices + Net Product Taxes = GVA at Market Prices (GDP at Market Prices)

• Before 2015, India's principal measure was GDP at Factor Cost.
• Since the January 2015 revision, the CSO reports GVA at Basic Prices and GDP at Market Prices (simply called GDP).
• GVA = Total Output − Intermediate Consumption.
• Factor Cost includes only payments to factors of production.
• Basic Prices = Factor Cost + Net Production Taxes.
• Market Prices = Basic Prices + Net Product Taxes.
• Net Taxes = Taxes − Subsidies.
• Production taxes and product taxes are added at different stages to arrive at GDP at market prices.