Market prices

Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 12, Ch 2 "National Income Accounting"

Meaning

Market prices are the prices buyers actually pay for goods and services. They include all indirect taxes and subtract all subsidies.

Market price = Factor cost + Net indirect taxes, where Net indirect taxes = Indirect taxes − Subsidies. This covers both production taxes and product taxes.

This matters because the same output can have different values depending on which taxes and subsidies you count. Since the January 2015 revision, India's headline number is GDP at market prices, now simply called "GDP".

Explanation

How taxes and subsidies move the price

• Factor cost is the price the producer receives. It pays only the factors of production: wages, rent, interest and profit.
• Indirect taxes are taxes on goods, services or production, not on income. They make the buyer pay more than the producer gets.
• Subsidies are government payments that make the buyer pay less than the producer gets.
• Petrol:
• It carries heavy taxes.

• So its market price is well above its factor cost.

• Cooking gas (LPG):

• It is subsidised.
• So its market price is below its factor cost.

The two kinds of indirect taxes inside market prices

• Production taxes are paid simply because a firm produces. They do not depend on how much it produces.
• Examples: land revenue, stamp and registration fees [5].

• Net production taxes = production taxes − production subsidies.

• Product taxes are charged per unit of a good or service that is produced or sold.

• Examples: GST, excise duties, customs duties.
• Net product taxes = product taxes − product subsidies.

• Examples of product subsidies are food, petroleum and fertiliser subsidies [5].

• Service tax: NCERT still lists it as a product tax. It was merged into GST from July 2017.

• Market prices include both kinds of net taxes. Basic prices include only net production taxes.

The valuation chain, step by step

• GVA at factor cost + net production taxes = GVA at basic prices
• GVA at basic prices + net product taxes = GDP at market prices
• MoSPI's official form: "GDP = GVA at Basic Price + Net Taxes on Products" [4]

Worked example (₹ crore, one small economy):

Step	Item	Value
1	GVA at factor cost (wages + rent + interest + profit)	100
2	+ Production taxes 6 − production subsidies 1 = net production taxes	+5
3	= GVA at basic prices	105
4	+ Product taxes (GST, excise) 18 − product subsidies (fertiliser) 3 = net product taxes	+15
5	= GDP at market prices	120
6	GDP at factor cost = 120 − 15 − 5	100

• Here market price is higher than factor cost because net indirect taxes (15 + 5 = 20) are positive.
• If subsidies were larger than taxes, market price would be lower than factor cost.

What makes the market-price value rise or fall (without output changing)

• The gap widens when tax collection is strong or subsidies are cut:
• Net product taxes grow faster than GVA.

• So GDP at market prices grows faster than GVA.

• The gap narrows when subsidies rise, for example food or fertiliser subsidies in a bad year:

• Net product taxes grow slower than GVA.

• So GDP grows slower than GVA.

• So a market-price number can change even when actual production stays the same.

In India

• Who measures it: the NSO (National Statistical Office) under MoSPI. The old CSO (Central Statistics Office) is now part of the NSO.
• Data sources for the tax part:
• Product taxes at current prices come from CGA (Controller General of Accounts) and CAG data. They include GST and non-GST revenue [4].

• The Centre's product subsidies are built from food, urea, petroleum and nutrient-based subsidies [4].

• January 2015 revision:

• The base year moved from 2004-05 to 2011-12.
• The headline changed from GDP at factor cost to GDP at market prices.
• Sector-wise data is now given as GVA at basic prices.

• The series followed the UN System of National Accounts 2008 (SNA 2008), the global rulebook for national accounts.

• Current series (base 2022-23, released 27 February 2026): it still uses GDP = GVA at basic prices + net taxes on products [2][3].

• Latest figures (current prices, 2022-23 base series) [3]:

Item	2024-25 (FRE)	2025-26 (SAE)
GVA at basic prices	₹2,88,54,467 cr	₹3,13,60,846 cr
Net taxes on products	₹29,52,841 cr	₹31,86,311 cr
GDP at market prices	₹3,18,07,309 cr	₹3,45,47,157 cr

• In 2025-26, net product taxes were about 9.2% of GDP at current prices [3].
• 2025-26 nominal growth: net product taxes grew 7.9%, GVA 8.7% and GDP 8.6%. The tax gap narrowed slightly [3].
• 2023-24, old series (real): net product taxes grew 16.5%, GVA 8.6% and GDP 9.2%. GDP grew faster than GVA because the tax gap widened [4].

Don't confuse with

• Factor cost: this is what producers receive. It has no taxes and no subsidies. Market price adds all net indirect taxes on top of it.
• Basic prices: this is factor cost + net production taxes only. Market price also adds net product taxes such as GST.
• Current prices: this is about which year's prices are used, not about taxes. GDP at market prices can be measured at current prices or at constant prices. Constant prices are the prices of the base year, now 2022-23.
• GDP at factor cost (NCERT trap): GDP at market prices − net product taxes gives GVA at basic prices, not factor cost. To get factor cost, you must also subtract net production taxes.

Prelims Hooks

• Market price = factor cost + net indirect taxes, where net indirect taxes = indirect taxes − subsidies.
• GDP at market prices = GVA at basic prices + net product taxes [4].
• Land revenue and stamp and registration fees are production taxes. GST, excise and customs are product taxes. Food, fertiliser and petroleum subsidies are product subsidies [5].
• Market price > factor cost when net indirect taxes are positive (petrol). Market price < factor cost when subsidies are larger than taxes (LPG).
• Since the January 2015 revision, India's headline "GDP" means GDP at market prices, and sector-wise data is GVA at basic prices. The current 2022-23 base keeps this framework [2][3].
• Trap: "market prices" and "current prices" are not the same thing. The first is about taxes. The second is about which year's prices are used.

Mains Points

• Headline growth reflects tax and subsidy choices, not only production:
• When subsidies are cut or GST collections are strong, GDP at market prices grows faster than GVA.
• When food or fertiliser subsidies rise in a shock year, GDP grows slower than GVA.

• Example: in 2023-24 (old series), real GDP grew 9.2% but real GVA grew only 8.6%, because net product taxes jumped 16.5% [4]. So analysts use GVA to judge the supply side, and GDP at market prices for demand-side analysis and comparing countries.

• Global comparability: moving to market prices and basic prices under SNA 2008, along with following the IMF's Special Data Dissemination Standard (SDDS) (the IMF's standard for publishing economic data), makes India's GDP comparable with other countries [2]. India plans to move to SNA 2025 at its next base revision [2].

• Fiscal ratios depend on the market-price GDP number:
• Debt-to-GDP and deficit-to-GDP ratios under the FRBM targets use GDP at market prices as the denominator.
• Rebasing cut 2024-25 nominal GDP from ₹330.68 lakh crore to ₹318.07 lakh crore, about 3.8% lower [3][4].
• So the same debt or deficit now looks larger as a share of GDP.

Related concepts

• Factor cost
• Basic prices
• Production taxes
• Product taxes
• Net indirect taxes
• GDP at factor cost
• GVA at factor cost
• GVA at market prices

Read more

• Valuation: factor cost, basic prices and market prices (the 2015 revision)