India’s New GDP Series 2011-12
India has shifted to a new GDP series. The organisation responsible for
calculating national income – CSO (Central Statistical Organisation) –
adopted a new series based on the year 2011-12 instead of the previous
2004-05. One might need to understand a few technical terms like GVA at
basic prices, production tax, product tax etc. to understand the changes
brought about in the new series, which is explained below.
National Income:
The total income of a nation can be expressed using many parameters like
GDP, GNP, NDP, NNP etc. There are again sub-variations like GDP at factor
cost, GVA at basic price, GDP at market price etc.
GDP:
● Gross Domestic Product (GDP) is the total money value of all
final goods and services produced in the economic territories of
a country in a given year.
● In simple terms, GDP is the product of the quantity of goods
(and services) produced with their final price (value).
● GDP can be expressed at the constant price and at the current
price. Constant price calculations are inflation adjusted (real
GDP), while current price calculations include the inflation
component too (nominal GDP).
● GDP can also be expressed at factor cost and market prices
Factor Cost vs Basic Price vs Market Price:
● General Relationship between Factor Cost and Market Price:
Factor Cost + Indirect Tax – Subsidies = Market Price.
, ● The relationship between Factor Cost and Basic Price: Factor
cost + production tax – production subsidies = Basic prices.
● The relationship between Basic Price and Market Price: Basic
Price + Product tax – Product Subsidy = Market Price.
● Note: Thus, it is clear that market price includes both product
tax as well as production tax while excludes both product and
production subsidies.
● Basic price: Basic prices exclude any taxes on products the
producer receives from the purchaser and passes on to the
government (Eg: GST or Sales Tax or Services Tax) but include
any subsidies the producer receives from government and uses
to lower the prices charged to purchasers. In simple terms,
basic price is the subsidized price without tax.
GVA:
● GVA is defined as the value of output less the value of
intermediate consumption. For example, if the value of final
output is Rs.25 and that of an intermediate product is Rs.17,
then the value addition is Rs.8. The gross value addition – when
value additions at all intermediate stages are calculated should
be equal to the GDP, ie Rs.25.
● The significance of GVA: Value added represents the
contribution of labour and capital to the production process.
● The connection between GDP and GVA: As an example consider
the case of 1 bottle of orange juice you buy from a retail outlet
for Rs. 30. As this is the money value of the final output, Rs.30 is
value for GDP. The same GDP can be calculated by counting the
value addition in intermediate stages too.
● GVA is calculated usually without discounting for capital
consumption or depreciation.
● When the value of taxes on products (less subsidies on
products) is added, the sum of value added for all resident units
gives the value of gross domestic product (GDP).
India has shifted to a new GDP series. The organisation responsible for
calculating national income – CSO (Central Statistical Organisation) –
adopted a new series based on the year 2011-12 instead of the previous
2004-05. One might need to understand a few technical terms like GVA at
basic prices, production tax, product tax etc. to understand the changes
brought about in the new series, which is explained below.
National Income:
The total income of a nation can be expressed using many parameters like
GDP, GNP, NDP, NNP etc. There are again sub-variations like GDP at factor
cost, GVA at basic price, GDP at market price etc.
GDP:
● Gross Domestic Product (GDP) is the total money value of all
final goods and services produced in the economic territories of
a country in a given year.
● In simple terms, GDP is the product of the quantity of goods
(and services) produced with their final price (value).
● GDP can be expressed at the constant price and at the current
price. Constant price calculations are inflation adjusted (real
GDP), while current price calculations include the inflation
component too (nominal GDP).
● GDP can also be expressed at factor cost and market prices
Factor Cost vs Basic Price vs Market Price:
● General Relationship between Factor Cost and Market Price:
Factor Cost + Indirect Tax – Subsidies = Market Price.
, ● The relationship between Factor Cost and Basic Price: Factor
cost + production tax – production subsidies = Basic prices.
● The relationship between Basic Price and Market Price: Basic
Price + Product tax – Product Subsidy = Market Price.
● Note: Thus, it is clear that market price includes both product
tax as well as production tax while excludes both product and
production subsidies.
● Basic price: Basic prices exclude any taxes on products the
producer receives from the purchaser and passes on to the
government (Eg: GST or Sales Tax or Services Tax) but include
any subsidies the producer receives from government and uses
to lower the prices charged to purchasers. In simple terms,
basic price is the subsidized price without tax.
GVA:
● GVA is defined as the value of output less the value of
intermediate consumption. For example, if the value of final
output is Rs.25 and that of an intermediate product is Rs.17,
then the value addition is Rs.8. The gross value addition – when
value additions at all intermediate stages are calculated should
be equal to the GDP, ie Rs.25.
● The significance of GVA: Value added represents the
contribution of labour and capital to the production process.
● The connection between GDP and GVA: As an example consider
the case of 1 bottle of orange juice you buy from a retail outlet
for Rs. 30. As this is the money value of the final output, Rs.30 is
value for GDP. The same GDP can be calculated by counting the
value addition in intermediate stages too.
● GVA is calculated usually without discounting for capital
consumption or depreciation.
● When the value of taxes on products (less subsidies on
products) is added, the sum of value added for all resident units
gives the value of gross domestic product (GDP).
