Topic: National Income Accounting
Q6. Distinguish between GDP at factor cost and GDP at market prices. Examine their relevance for fiscal policymaking in India. (10 M)
Difficulty Level: Medium
Reference: InsightsIAS
Why the question
National income indicators form the basis of fiscal planning, deficit targeting, and tax policy in India, especially after the shift to GDP at market prices under the new national accounts series.Key Demand of the question
The question requires a clear conceptual distinction between GDP at factor cost and GDP at market prices and an explanation of how this distinction influences fiscal policymaking, including taxation, budgeting, and deficit assessment in India.Structure of the Answer
Introduction
Briefly situate national income measurement as a core input for fiscal decision-making and macroeconomic assessment in India.Body
- Distinction between GDP at factor cost and GDP at market prices in a tabular form highlighting conceptual and accounting differences.
- Relevance of GDP at market prices for fiscal policymaking in terms of tax buoyancy, deficit ratios, subsidy assessment, and budgetary planning.
Conclusion
Underline why GDP at market prices offers a more policy-relevant and internationally comparable base for fiscal management in India.
