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India overtakes Japan to become third-largest economy in purchasing power parity

Discussion in 'World Economy' started by ManuSankar, Apr 19, 2012.

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  1. ManuSankar

    ManuSankar Major SENIOR MEMBER

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    India overtakes Japan to become third-largest economy in purchasing power parity

    NEW DELHI: Its economy may be in the grips of a slowdown, its polity paralysed and markets morose, but all this hasn't prevented India from overtaking Japan to become the world's third-largest economy in purchasing power terms.

    Data just released by the International Monetary Fund (IMF) shows that India's gross domestic product in purchasing power parity (PPP) terms stood at $4.46 trillion in 2011, marginally higher than Japan's $4.44 trillion, making it the third-biggest economy after the United States and China.

    India's share in world GDP in terms of PPP, a measure of relative consumer prices across countries, stood at 5.65% in 2011 against Japan's 5.63%, with the gap expected to widen significantly by 2017. In five years, the IMF estimates the share of India's GDP in PPP terms would grow to 8.09% compared with 4.8% for Japan.

    Economists said India's move up the league table was a reminder of the boundless potential the country offered, despite the prevailing mood of pessimism.

    "This basically turns the spotlight back on the tremendous opportunity India's growth story has even under the given conditions. If India plays its cards correctly through policy measures we can actually achieve much more in the next 5-10 years," said Saugata Bhattacharya, chief economist with Axis Bank.

    Added Samiran Chakraborty, chief economist with Standard Chartered India: "This shows that India is no longer an emerging economy. It has already emerged. But beyond that there are not many conclusions one can take from the data." The PPP system allows GDP comparisons to be made by asking how much money would be needed to purchase the same goods and services in two countries and using that to calculate an implicit foreign exchange rate.

    Under this method, a dollar should be able to buy the same amount of goods anywhere in the world and exchange rates should adjust accordingly. It also strips away distortions that come with market exchange rates, which are often volatile, affected by political and financial factors that do not lead to immediate changes in income and tend to understate the standard of living in poor countries.

    [​IMG]

    The Economist magazine's proprietary Big Mac Index, which takes the price of a McDonald burger across 120 countries to calculate the 'real' price of their currencies, is another crude way to measure PPP. India was included in the index recently. It showed that the Indian rupee was undervalued by 62% against the US dollar in January.

    PPP methods help adjust income to prices for a meaningful comparison on quality of life in countries with widely different prices and incomes.

    "The PPP comparison is more useful while comparing the standards of living between countries," said Ulrich Bartsch, a senior macroeconomist in the World Bank's India office, adding that while the per capita GDP in PPP terms shows that India still has some distance to go to reach Japanese levels, "the difference is less than the comparison of per capita GDP in nominal dollar terms would indicate".

    India, according to the IMF's calculations, was able to overtake Japan in 2011 because its economy grew 7.24% whereas in the case of Japan, it shrank 0.75%, hit by a tsunami that ravaged the country and exacerbated the adverse impact of global economic slowdown.

    While India may have beaten Japan under this particular system of calculation, under more conventional methods of measurement, it has to travel a long distance to catch up. Under the regular method of GDP calculation, India's economy is well behind Japan. Even assuming an average economic growth rate of 7.5% over the next five years, the Indian economy will be only $2.9 trillion compared with Japan's $6.69 trillion.

    For the fiscal year to end-March 2013, official forecasts are for GDP growth of around 7%, slightly higher than the 6.9% expected in the previous year and much lower than 8.4% the year before.

    Economists reckon that India will continue to lag behind when it comes to matching living standards of its population with more developed western and Asian economies.

    Yet, with its demographic advantage and prospects of sustainable high growth over the next five years, the country is expected to consistently improve its global economic standing.

    India overtakes Japan to become third-largest economy in purchasing power parity - Page2 - The Economic Times
     
  2. KAUTILYA

    KAUTILYA Lieutenant SENIOR MEMBER

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    Where were you all this while??After a long time!!
     
  3. GUNS-N- ROSES

    GUNS-N- ROSES Major SENIOR MEMBER

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    it doesnt change ground reality, there is lot of work to be done in poverty eradication, infrastructure and anti corruption areas
     
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  4. KAUTILYA

    KAUTILYA Lieutenant SENIOR MEMBER

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    We have to go long long way!!:yes:
     
  5. sunny_10

    sunny_10 BANNED BANNED

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    in fact India had become 3rd largest economy on PPP by 2006 itself, by old way of measuring GDP on PPP which was in application till 2006, as below:

    from here, GDP on PPP of India by new method was measured as $4.5tn in 2011 so by the old method including undocumented part of GDP also, we find GDP on PPP of India would be around $7.2tn by 2011, 62% more similar to 2005. (The difference of GDP on PPP for the developed nations were found just 2% to 5% by old method, I remember.) and again it is estimated that total number of middle class of India is 350mil with the per capita income similar to the Very High HDI countries like Argentina, Poland, Malaysia etc above $15,000 per head. This way share of Indian middle class in Indian GDP comes around $5.2tn in total of $7.2tn, leaving around $2.0tn for rest of 800mil people with per capita income of around $2,500 per head on PPP for rest of the 800mil poor people, which is similar to the countries like Bangladesh and close to Pakistan also.................:pop:


    And also we know that total population of India at the time of freedom, in 1947, was around 341mil but they now have 350mil middle class similar to Very High HDI countries like Argentina, Poland, Malaysia etc :india:
     
    Last edited: May 19, 2012
  6. vstol jockey

    vstol jockey Colonel MILITARY STRATEGIST

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    The data about per capita GDP in PPwr is wrong as it does not take into account our black economy and gold economy. These figs are only correct for our white economy. India has four parallel economies, White, Black, Gold and Agriculture.
     
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  7. Manmohan Yadav

    Manmohan Yadav Brigadier STAR MEMBER

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    Very true,
    The size of Indian Economy can be as much as
    2.5 Times of the current GDP declared by the GOI
     
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  8. DaRk KnIght

    DaRk KnIght Lt. Colonel ELITE MEMBER

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    There is no method to take into account black economy as the figures of that will never be known.

    Apart from that I think white economy does include Agriculture.
     
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  9. Manmohan Yadav

    Manmohan Yadav Brigadier STAR MEMBER

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    yes it does.

    BTW,
    Experts say that the amount of Black money in India is about 20 Lakh Crores,
    but of course its an estimate.

    One of the clues to the size of the Indian Economy can be the amount of money in circulation
    Ideally and economy the size of India will have Cash currency worth 2 Lakh Crores in circulation annually
    Thats almost 2.5% of the GDP

    But the amount of Currency in circulation in India today is over 8.5 Lakh Crores
    So its not hard to guess the true size of the Economy, it includes Black Money
     
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