1.18           ndian       onom
     cost AnD Price of nAtionAl income                                              has switched over to calculating it at
                                                                                    market price (i.e., market cost). The market
     While calculating national income the issues
                                                                                    price is calculated by adding the product
     related to ‘cost’ and ‘price’ also needs to be
                                                                                    taxes (generally taken as the indirect taxes
     decided. Basically, there are two sets of costs and
                                                                                    of the Centre and the States) to the factor
     prices; and an economy needs to choose at which
                                                                                    cost. This way India switched over to the
     of the two costs and two prices it will calculate its
                                                                                    popular international practice. Once the
     national income. Let us understand the confusion
                                                                                    GST has been implemented it will be
     and the relevance of this confusion.14
                                                                                    easier for India to calculate its national
           (i) Cost: Income of an economy, i.e., value of                           income at market price.
                 its total produced goods and services may
                                                                              (ii) Price: Income can be derived at two prices,
                 be calculated at either the ‘factor cost’ or
                                                                                    constant and current. The difference in
                 the ‘market cost’. What is the difference
                                                                                    the constant and current prices is only
                 between them? Basically, ‘factor cost’ is
                                                                                    that of the impact of inflation. Inflation
                 the ‘input cost’ the producer has to incur
                                                                                    is considered stand still at a year of the
                 in the process of producing something
                                                                                    past (this year of the past is also known
                 (such as cost of capital, i.e., interest on
                                                                                    as the ‘base year’) in the case of the
                 loans, raw materials, labour, rent, power,
                                                                                    constant price, while in the current price,
                 etc.). This is also termed as ‘factory price’
                                                                                    present day inflation is added. Current
                 or ‘production cost/price’. This is nothing
                                                                                    price is, basically, the maximum retail
                 but ‘price’ of the commodity from the
                                                                                    price (MRP) which we see printed on the
                 producer’s side. While the ‘market cost’
                                                                                    goods selling in the market.
                 is derived after adding the indirect taxes
                 to the factor cost of the product, it means                   As per the new guidelines the base year in
                 the cost at which the goods reach the                    India has been revised from 2004–05 to 2011–12
                 market, i.e., showrooms (these are the                   (January 2015). India calculates its national income
                 cenvat/central excise and the CST which                  at constant prices—so is the situation among other
                 are paid by the producers to the central                 developing economies, while the developed
                 government in India). This is also known                 nations calculate it at the current prices. Though,
                 as the ‘ex-factory price’. The weight of the             for statistical purposes the CSO also releases the
                 state taxes are then added to it, to finally             national income data at current prices. Why?
                 derive the ‘market cost’. In general, they               Basically, inflation has been a challenging aspect
                 are also called ‘factor price’ and ‘market               of policymaking in India because of its level (i.e.,
                 price’.                                                  range in which it dwindles) and stability (how
                        India officially used to calculate its            stable it has been). In such situations growth in
                 national income at factor cost (though                   the income levels of the population living below
                 the data at market cost was also released                the poverty level (BPL) can never be measured
                 which were used for other purposes                       accurately (due to higher inflation the section will
                 by the governments, commerce and                         show higher income) and the government will
                 industry). Since January 2015, the CSO                   never be able to measure the real impact of its
                                                                          poverty alleviation programmes.
       14.    The information on issues like ‘cost’, ‘price’, ‘taxes’ and      Here, one important aspect of income
              ‘subsidies’ are based on the different Discussion Papers
              released by the Central Statistical Organisation (GoI)      needs to be understood. Income of a person has
              from time to time.                                          three forms—the first form is nominal income