What are the main shortcomings of using GDP as a measure of economic growth? Discuss while suggesting alternative measures for the same.

Published: March 5, 2017

GDP is the annual value of goods and services produced. It is felt that GDP as a measure of economic growth has several shortcomings. For one, GDP does not measure the indicators that are ends like health, education, quality of environment etc. Instead, it takes into account the parameter as income. Income which is considered as a foundation of GDP is not an end instead a means to an end. GDP takes into account only those efforts whose outcomes are seen on the marketplace of an economy. It largely ignores the services provided by housewives’, social service done by people in order to increase the total productivity of the nation etc. So, the welfare of a nation cannot be inferred completely from the measurement of national income. In countries like India which is plagued by the menace of black money, the official GDP cannot enjoy any sanctity.
Many have argued that GDP can be more meaningful with improvement in the quality of data. But improvement in quality of data cannot improve GDP as a concept. Alternatively, indicators like Millennium Development Goals or Sustainable Development Goals can be used as indicators to measure economic development. Also, United Nations Development Programme’s (UNDP) Human Development Index (HDI) which is based on three heads of health, education and GDP can prove useful.

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