Question

What are the limitations of the Gross Domestic Product?

Answer 1

The GDP is the most widely used measure of the state of the economy. While appreciating its usefulness, we should be aware of some of its limitations –

1. Several important goods and services are left out of the GDP – The GDP includes only the goods and services sold in the market. Clean air. which is vital for a healthy life, has no market value, and is left out of the GDP.
2. GDP measures only quantity but not quality – In the 1970s schools and banks were not allowed to use ballpoint pens r because of their poor quality. Since then, not only has there been a substantial increase in the number of ballpoint pens produced in India but their quality has also improved a lot. The improvement in the quality of goods is very important but it is not captured by the GDP.
3. GDP does not tell us about the way income is distributed in the country – The GDP of a country may be growing rapidly but income may be distributed unequally that only a small percentage of people may be benefiting from it.
4. GDP does not tell us about the kind of life people are living – A high level of per capita real GDP can go hand–in–hand with the very low health conditions of people, an undemocratic political system, high pollution, and high suicide rate.