Constant prices
Also called: Base-year prices · Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 10, Ch 2 "Sectors of the Indian Economy"
Meaning
Constant prices means valuing a year's output at the prices of a fixed base year. Because prices are held fixed, any change in value over time shows a real change in production, not a change in prices. GDP measured this way is called real GDP, and economic growth is measured using it. The base year is revised from time to time because relative prices, the mix of products and technology change. India's GDP base year moved from 2004-05 to 2011-12 in January 2015, and a newer 2022-23 base series followed.
Example
In 2000, 100 loaves of bread are made at ₹10 each. In 2001, 110 loaves are made at ₹15 each. At current prices, GDP in 2001 is ₹1,650. At constant 2000 prices, it is 110 × ₹10 = ₹1,100. This shows real growth of 10%.
Don't confuse with
- Current prices: these are the prices of the year being measured, and they give nominal GDP. Nominal GDP changes with both quantity and price.