Limitations of GDP per Capita in Measuring Growth

GDP or gross domestic product has always served as the most important factor in the calculation of the overall economic condition of the citizens, their standard of living and growth. However, proper analysis of the entire process has delineated certain limitations of GDP per Capita in Measuring Growth.

Calculation of GDP per Capita in Measuring Growth

The process of calculation of GDP per capita in measuring growth requires the division of the current GDP figure of India with the total Indian population. The result obtained helps in the determination of the total need of the Indian citizens that the GDP is required to gratify. The calculation of the total production, GDP includes public consumption accompanied with private consumption and the production of machinery that assist in further production of goods. The process is fraught with numerous limitations.

Territorial differences between earning and consumption

The statement of GDP per capita is unable to delineate territorial differences in the output, the employment levels and the per head earnings of the Indian citizens. It takes into account the overall employment and earning of a region without differentiating the zones within that region which inhabit wealthy people from the zones that inhabits comparatively poor people on account of unemployment and economic deprivation.

Economic Development and its Consequence

The growth ratio cited by GDP figures do not take into account the pollution level that increase due to the rise in the number of industries that adversely effect the standard of living of the people and has a negative impact on growth. GDP figures also fail to provide any information about the standard of goods and services available to the Indian citizens.

Parallel Economy or Black Marketing

The GDP figure also fails to take into account the earnings gained through black marketing, which is flourishing at a faster pace and is thus described as the parallel economy. The parallel economy involves economic activity that leads to growth, which is not registered with the government organizations and hence is not reflected within the GDP calculation. This phenomenon ranks high among the limitations of GDP per Capita in measuring growth. GDP figures also do not include self -consumed commodities or exchange of goods that contributes to growth ratio.

Discrepancies in Earnings

The statement of GDP hides the earnings distribution together with irregular circulation of wealth. The discrepancies in the distribution of wealth delineate only one side of the economy i.e. the growth in the economy through the GDP figure but the GDP figure fails to delineate the associated increase in relative poverty.

Income and Spending Ratio

It is necessary to examine the ratio between income and spending in any economy of the country. The GDP figures do not provide any information about the fact that the growth is achieved through spending resources in the fulfillment of short-term demands of the citizens and not through spending resources for the fulfillment of the long-term improvements. Such a condition would no doubt delineate growth in the economy at present and at the same time over exhaustion of the available limited resources would restrict growth prospects in the years to come. Such a phenomena could be seen as the most significant limitation among all the limitations of GDP per Capita in measuring growth.

Thus, all these factors delineate the limitations of GDP per Capita in measuring growth and necessitate the emergence of new methods in the calculation of growth, in all the countries of the world.