Following are the limitations of using GDP as an index of welfare of a country:
(i) With every increase in the level of GDP, distribution of GDP is getting more unequal, welfare level of the society may not rise.
(ii) Composition of GDP may not be welfare oriented even when the level of GDP tends to rise. i.e. rise in GDP may be concentrated in few hands.
(iii) Because of non-monetary transactions, GDP remains under estimated and therefore, there is no proper index of welfare.
(iv) Impact of externalities (positive or negative impact of an activity) is not accounted in the index of social welfare in terms of GDP.