GDP is the measure of the market value of all final goods and services produced in an economy during any particular year. In India the central statistical office calculates the GDP.
Importance of GDP:
- GDP helps in knowing the size of the economy. GDP shows the total production in an economy so one can know the performance of an economy through GDP.
- GDP tells the expenditure and income of an economy this helps the policymakers to formulate monetary and fiscal policy accordingly.
- A high performing has got the ability to attract foreign investments leading to further expansion in income and employment.
- It also gives an idea about sectors which are lagging behind in their performance so that policy makers can initiate appropriate corrective measures to achieve the goal.
Limitations of GDP:
- GDP does not include non-material aspects like crime rate, industrial safety standards, mortality rate etc.
- It does not reveal the amount of income inequality in our country. It shows the per capita income which is only an average number; it does not mean every individual in the economy is getting the same per capita income.
- GDP fails to take into account the environmental and ecological damage caused due to economical development.
- It does not encourage countries to adopt Sustainable development.
Development is a process that creates growth, progress, positive change or the addition of physical, economic, environmental, social and demographic components. Noble laureate Amartya Sen has defined development as a process of expanding the real freedoms that people enjoy.
GDP measures only the economic expansion of a country it fails to take into account the other aspects of development. It is concerned purely with materialistic aspect does not speak about other aspects of life that make it meaningful and wholesome. So GDP alone cannot be sufficient to measure the development of a country. There are other alternative measures which include both income and non-income variables like life expectancy, literacy rate, mortality rate, freedom form choice etc.
Other alternative indicators include:
The human development index- This was devised by UNDP (United nations development programme) and developed by Mahbud ul Haq and Amartya Sen. This approach measures education, health, life expectancy at birth and various other crucial variables.
The social progress index- It is a better way of measuring societal development. It takes into account access to water and sanitation, educational and health outcomes, public criminality, housing, access to information, communication and political liberties.
Genuine Progress indicator- It is used to measure the economic growth of a country. It takes everything that GDP takes into account but addition to this it also takes into account the cost of crime, cost of ozone depletion and cost of resource depletion etc.
Happy planet index- It was introduced by New economics foundation in 2006. It takes into account human well-being and environmental impact.
The goal of all countries especially the developing countries is to attain a higher level of GDP accordingly the fiscal, monetary and other policies of the government are naturally intended to promote this goal. However the goal of achieving higher GDP has become older concept. National governments have become more and more aware of other goals that constitute the true development of mankind. Materialistic affluence alone cannot assure the societies a comprehensive welfare environment. Awareness of this goal has become more and more pronounced especially in economies that had already achieved a high level of development especially G7 countries. But Asian and African countries that are grouped under third world countries could not afford to make use of their scares resources in pursuit of achieving the important goals other than achieving higher GDP and economic development. Making the world safer and happier, the lofty goals stressed by modern thinkers and world environment leaders should become the responsibility of the developed nations and international institutions affiliated to UN. The burden rests upon the affluent nations who are the real polluters and threat to a safe and happy world.