GDP as a Measure of Economic Performance

Gross Domestic Product (GDP) represents the total monetary value of all goods and services produced within a country’s borders over a specified period. While it is widely used as an indicator of economic performance, it has significant limitations in assessing overall well-being and environmental health.

Criticisms of GDP as an Economic Indicator

1. Limited Economic Scope: GDP primarily measures economic output and excludes crucial aspects like health, education, and poverty. For example, despite India’s high GDP (around $3 trillion in 2020), it ranked only 132 on the Human Development Index (HDI) in 2021.
2. Unrecognized Unpaid Work: The International Labour Organisation estimates that 16.4 billion hours of unpaid care work are performed daily worldwide, contributing substantially to societal welfare but remaining uncounted in GDP calculations.
3. Overlooks Income Disparities: GDP does not reflect wealth distribution. In India, the top 1% controls 21% of the nation’s wealth, while the bottom 50% holds just 13%, highlighting significant income inequality.
4. Preference for Short-Term Gains Over Sustainability: GDP favors immediate economic gains, often at the expense of sustainability. For instance, industrial growth in India reduced groundwater resources by 32% between 1993 and 2018.
5. Neglect of Well-being and Social Outcomes: High GDP does not necessarily indicate improved well-being. India ranked 126th in the 2023 World Happiness Report, emphasizing the gap between economic growth and quality of life.

Alternatives to GDP

1. Well-being Indicators: Countries like New Zealand employ well-being measures, incorporating factors such as income, job quality, health, and environmental quality to assess societal progress more holistically.
2. Human Rights-Based Framework: This approach evaluates economic policies based on their success in fulfilling essential rights, such as adequate living standards and healthcare, emphasizing social justice over pure economic growth.
3. Genuine Progress Indicator (GPI): By adjusting GDP for environmental degradation, income distribution, and unpaid work, the GPI offers a more comprehensive measure of societal progress.
4. Buen Vivir (Ecuador): “Buen Vivir” emphasizes community well-being and harmony with nature, promoting access to essential needs such as food, health, and education, rather than conventional economic growth metrics.

Limitations of Alternative Measures

1. Measurement Challenges: Well-being indicators often rely on frameworks that can lack clarity, especially when addressing issues like gender equality.
2. Scalability of Buen Vivir: Although culturally significant, Buen Vivir may face difficulties in scaling due to its reliance on specific regional traditions and gender roles.
3. Data Limitations: Many alternative approaches rely on comprehensive data, which can be unavailable or inconsistent, especially in regions like India.
4. Policy Integration: Shifting from GDP-centered policies to incorporate well-being and sustainability indicators can be complex due to existing policy priorities.

Way Forward

1. Adopting an Integrated Approach: India could adopt an integrated strategy combining well-being, human rights, and sustainability, as seen in the National Health Mission’s efforts to improve healthcare accessibility.
2. Policy Reforms to Address Inequality: Programs like Pradhan Mantri Awas Yojana, which aims to provide housing for over 20 million people, can reduce inequality and improve overall well-being.
3. Enhanced Data Collection: Initiatives like the Ayushman Bharat Digital Mission aim to create a digital health ecosystem, improving data availability for well-being indicators.
4. Aligning with SDGs: National policies can align with the UN’s Sustainable Development Goals (SDG), such as Goal 3 on health and Goal 4 on education, for inclusive societal progress. For instance, the New Education Policy 2020 supports inclusive education.
5. Community-Based Approaches: Organizations like the Self-Employed Women’s Association (SEWA) promote economic empowerment by aligning community needs with national policies, enhancing well-being at a local level.