Estimates of gross state domestic product at market prices and its implication for the finance commission

The 12^th and 13^th Finance Commissions have emphasized on the need for preparing estimates of GSDP at market prices. Since such estimates are yet not available officially, the recently appointed 14^th Finance Commission is also likely to face this data gap. This paper discusses the conceptual challenges involved in estimating GSDP at market prices. We argue that among possible approaches for estimating state-wise contribution in indirect taxes levied by central government, destination based approach would provide most meaningful estimates of GSDP at market prices; especially for the analysis of state finances. Adoption of GST in the near future may also help in estimating GSDP at market prices, and provide a better measure of the tax base at state level.