Factor Cost, Basic Prices and Market Prices

In India, the most foregrounded measure of national income has been the GDP at factor cost. The CSO (Central Statistics Office) of the Government of India has been detailing the GDP – Gross Domestic Product at factor cost and at market cost prices. In its revised in January 2015 and the CSO replaced GDP at factor cost with the GVA – Gross value Added at basic cost prices and the GDP at market cost prices, which is now known as GDP.

The notion of GVA

  • It is the value of total output manufactured in the economy less than the value of halfway utilization (the output which is used in manufacturing of output further and not used in final utilization)
  • The difference between factor cost, basic cost prices and market cost prices is based on the difference 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 association to manufacturing and are independent of the quantity of production such as land revenues, registration fee and stamp
  • Product taxes and subsidies, on the other hand, are paid or received per product. Factor cost comprises only the payment to factors of manufacturing, it does not comprise any tax
  • In order to arrive at the market cost prices, we have to sum to the factor cost the total indirect taxes less total subsidies
  • The basic cost prices lie in between : they comprise the production taxes (less manufacturing subsidies) but not product taxes (less product subsidies)
  • Hence, in order to arrive at market cost prices we have to add product taxes (less product subsidies) to the basic cost prices

The above mentioned is the concept that is explained in detail about Factor Cost, Basic Prices and Market Prices. To know more, stay tuned to BYJU’S.