Understanding GDP at Market Prices and GDP at Factor Cost

The First Thing we could understand from the above discussion is that GDP (FC) is GDP (MP) minus indirect taxes plus subsidies. Here we can figure out that the more is the subsidy, the more is difference between the GDP(FC) & GDP (MP). We take following example to understand this.
We suppose that in a particular year, GDP(FC) is Rs. 100. In the same year Indirect Taxes are Rs. 20 while the subsidies are Rs. 25. So, we can arrive at GDP(MP) using the following equation:
GDP(FC) = GDP(MP) -Indirect Taxes + Subsidies
Rs. 100 = GDP(MP) – Rs. 20 + Rs. 25
So, GDP (MP) = Rs. 100 + Rs. 20- Rs. 25 = Rs. 95
If the Government tries to raise the subsidies, the Difference between the
GDP(FC) and GDP(FC) will increase. The same is opposite for Indirect taxes.

The Question is, if the Economic Survey says that Economy has grown by 8.6 % in this year, what does it indicate? Is it GDP at market prices or GDP at Factor Cost?
The Answer is GDP at Factor Cost. The reason is simple because it takes into consideration, the other things such as Indirect taxes, Subsidies etc. which may affect the data.

List of Topics : Economic Survey 2010-11



  • Anonymous

    2 questions….

    which is the most correct measure of india`s gdp ….factor cost or current price?

    why india`s gdp is not measured in current price since it will reflect the final and most updated price of the goods and service at the market

  • bharat

    Now the government has recalculated India’s GDP at market price instead of Factor cost.