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Difficulty: EasyEconomic Growth, National Income Accounting, and Development Indicators

In National Income Accounting under the revised NSO methodology in India, Gross Value Added (GVA) at basic prices is calculated to measure sector-wise economic output. Which of the following equations correctly defines Gross Value Added (GVA) at basic prices?

  1. GVA at basic prices=GVA at factor cost+Production taxes−Production subsidies\text{GVA at basic prices} = \text{GVA at factor cost} + \text{Production taxes} - \text{Production subsidies}Answer
  2. B
    GVA at basic prices=GVA at factor cost+Product taxes−Product subsidies\text{GVA at basic prices} = \text{GVA at factor cost} + \text{Product taxes} - \text{Product subsidies}
  3. C
    GVA at basic prices=GDP at market prices+Production taxes−Production subsidies\text{GVA at basic prices} = \text{GDP at market prices} + \text{Production taxes} - \text{Production subsidies}
  4. D
    GVA at basic prices=GDP at market prices+Product taxes−Product subsidies\text{GVA at basic prices} = \text{GDP at market prices} + \text{Product taxes} - \text{Product subsidies}

Answer

Gross Value Added (GVA) at basic prices equals GVA at factor cost plus Production taxes minus Production subsidies.
Gross Value Added (GVA) at basic prices measures output from the producer's perspective. It is calculated by adding production taxes (such as land revenue, stamp duty, or professional tax) and subtracting production subsidies from GVA at factor cost. These production-level adjustments are independent of the volume of goods produced.

Step-by-Step Solution

1
Identify the relationship between GVA at factor cost and GVA at basic prices.
GVA at basic prices represents the amount receivable by the producer from the purchaser per unit of a good or service produced, excluding product taxes but including production taxes.
Production taxes and subsidies are related to production activities independent of output volume.
2
Distinguish between production taxes/subsidies and product taxes/subsidies.
Production taxes (e.g., land revenue, license fees) are added to factor cost to get basic prices, whereas product taxes (e.g., GST, import duty) convert basic prices to market prices.
Production taxes attach to the producer's operational setup, while product taxes attach to per-unit transactions.
3
Select the correct mathematical identity.
GVA at basic prices=GVA at factor cost+Production taxes−Production subsidies\text{GVA at basic prices} = \text{GVA at factor cost} + \text{Production taxes} - \text{Production subsidies}.
This directly aligns with the standard national accounts classification used by NSO India.

Key Concept

Gross Value Added (GVA) at basic prices vs factor cost
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Topics

Economic Growth, National Income Accounting, and Development Indicators