What is GDP at Factor Cost?

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GDP at Factor Cost in the Indian Economy: An Overview

Gross Domestic Product (GDP) at Factor Cost is a measure of the total value of goods and services produced within a country's borders, before accounting for indirect taxes and subsidies.

Introduction to GDP at Factor Cost:

Gross Domestic Product (GDP) at Factor Cost is a measure of the total value of goods and services produced within a country's borders, before accounting for indirect taxes and subsidies. It measures the income generated by the production of goods and services within a country. GDP at Factor Cost is an important indicator of a country's economic performance.

Importance of GDP at Factor Cost in the Indian Economy:

GDP at Factor Cost is an essential measure of a country's economic activity. It is used to track the overall economic growth of a country and compare it to other countries. In the Indian economy, GDP at Factor Cost is an important indicator of the country's economic progress and development.

Calculation of GDP at Factor Cost in the Indian Economy:

The calculation of GDP at Factor Cost in the Indian economy is done by adding up the value of all goods and services produced within the country's borders, before accounting for indirect taxes and subsidies. To arrive at the GDP at Factor Cost, the value of indirect taxes is subtracted from the GDP at Market Price, and the value of subsidies is added.

For example, if the GDP at Market Price in a year is Rs. 100,000 crores, the value of indirect taxes is Rs. 10,000 crores, and the value of subsidies is Rs. 5,000 crores, then the GDP at Factor Cost would be:

GDP at Factor Cost = GDP at Market Price - Indirect taxes + Subsidies

GDP at Factor Cost = Rs. 100,000 crores - Rs. 10,000 crores + Rs. 5,000 crores

GDP at Factor Cost = Rs. 95,000 crores

Limitations of GDP at Factor Cost:

Despite its importance in measuring economic progress, GDP at Factor Cost has several limitations. One of the limitations of GDP is that it does not take into account non-monetary factors such as environmental degradation and social welfare. For example, a country with a high GDP but poor air quality and high levels of poverty may not be a desirable place to live.

Another limitation of GDP is that it does not consider the distribution of income within a country. For example, if the GDP of a country is increasing, but the benefits are not evenly distributed, it may not result in an improvement in the standard of living for all residents.

Conclusion:

In conclusion, Gross Domestic Product (GDP) at Factor Cost is an important measure of economic progress in the Indian economy. It measures the income generated by the production of goods and services within the country, before accounting for indirect taxes and subsidies. However, GDP at Factor Cost has several limitations, including its failure to account for non-monetary factors such as social welfare and environmental degradation and the distribution of income within a country. Despite its limitations, GDP at Factor Cost remains an important tool for policymakers to measure economic growth and development in India.