GDP at factor cost

Indian Economy glossary

Also called: GDPFC · Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 11, Ch 4 "Presentation of Data"

Meaning

GDP at factor cost is GDP valued only by the payments made to factors of production, without any taxes. It is the value as received by producers. GDP at factor cost = GDP at market prices − net indirect taxes, where net indirect taxes = indirect taxes − subsidies. Both kinds of indirect taxes must be taken out:

  • net product taxes, such as GST and customs duty
  • net production taxes, such as land revenue and stamp duty

It was India's headline growth measure until the January 2015 revision. That revision moved the base year to 2011-12, made GDP at market prices the headline "GDP", and reported sectors as GVA at basic prices.

Example

Petrol is heavily taxed, so its market price is well above its factor cost. Cooking gas is subsidised, so its market price is below its factor cost. GDP at factor cost removes both effects.

Don't confuse with

  • GVA at basic prices: this equals GDP at market prices minus net product taxes only. Net production taxes must also be deducted to reach factor cost. NCERT Table 2.4 wrongly treats the two as the same.

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