Prime Minister of India in Kannada for UPSC | ಭಾರತದ ಪ್ರಧಾನ ಮಂತ್ರಿ

Market Price Formula: Before 2015 and After 2015

The formula for calculating Market Price in India saw a shift in terminology and approach after 2015 with the adoption of international accounting standards (System of National Accounts, SNA 2008). The base year revision for GDP calculations in 2015 brought significant changes in how national income aggregates like GDP at Market Price and GDP at Factor Cost were calculated.

1. Before 2015

• India used GDP at Factor Cost as the primary measure of economic output.
• Market Price was derived from GDP at Factor Cost by adding indirect taxes and subtracting subsidies.

Formula:

$$\text{Market Price} = \text{Factor Cost} + \text{Indirect Taxes} - \text{Subsidies}$$

Explanation:

• Factor Cost: The cost incurred in production, excluding taxes but including subsidies.
• Indirect Taxes: Taxes levied on goods and services (e.g., excise duty, service tax).
• Subsidies: Financial aid provided by the government to reduce the cost of goods.

2. After 2015

• The 2015 revision shifted focus to GDP at Market Price, aligning with international standards under SNA 2008.
• The concept of GDP at Factor Cost was replaced with Gross Value Added (GVA) at Basic Prices, which excludes product taxes and subsidies.

Formula:

$$\text{Market Price} = \text{GVA at Basic Prices} + \text{Product Taxes} - \text{Product Subsidies}$$

Explanation:

• GVA at Basic Prices: Includes the cost of production and factor payments but excludes product taxes and subsidies.
• Product Taxes: Taxes directly associated with the product (e.g., GST, excise duty).
• Product Subsidies: Subsidies directly linked to the product (e.g., LPG subsidy).

Key Difference in Formulas

Aspect	Before 2015	After 2015
Base Term	Factor Cost	GVA at Basic Prices
Market Price Formula	$\text{Factor Cost} + \text{Indirect Taxes} - \text{Subsidies}$	$\text{GVA at Basic Prices} + \text{Product Taxes} - \text{Product Subsidies}$
Focus	Indirect Taxes and Subsidies	Product Taxes and Subsidies

Why the Change?

1. Alignment with International Standards: To harmonize with SNA 2008 and make GDP data comparable globally.
2. Clarity and Precision: The terms Product Taxes and Product Subsidies are more specific than Indirect Taxes and Subsidies used earlier.
3. Policy Insights: Distinction between production-based and product-based metrics helps policymakers better analyze sectoral contributions.

Conclusion

The shift in the Market Price formula reflects India's modernization of its GDP measurement practices. Understanding both pre-2015 and post-2015 formulas is crucial for analyzing historical economic trends and comparing data across periods.

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