Economics • Indian EconomyHard
What is the primary rationale behind computing Gross Value Added (GVA) at basic prices rather than factor cost in the current national accounts statistics of India?
A. Basic prices include production taxes and exclude production subsidies, reflecting the actual amount received by producers✓ Correct Answer
B. Factor cost includes indirect taxes which distort the profitability metrics of manufacturing industries
C. Basic prices eliminate all forms of indirect taxes and subsidies, showing pure market demand
D. Factor cost incorporates depreciation costs of fixed capital which basic prices intentionally omit
💡 Solution & Explanation
Gross Value Added at basic prices includes production taxes and excludes production subsidies, capturing the actual amount retained by producers, whereas factor cost measures income received by factors of production before taxes. Distractors misstate the inclusion and exclusion criteria of taxes and subsidies under national accounting standards introduced in the 2011-12 base year revision. Production taxes like property tax are paid irrespective of the volume of production. The Central Statistics Office adopted these SNA 2008 guidelines to align Indian GDP calculations with global best practices.
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