purchasing-power-parities-and-the-size-of-the-indian-economy

Context: The World Bank, under International Comparison Program, has released new Purchasing Power Parities (PPPs) for the reference year 2017 in order to adjust differences in the cost of living across economies of the World.

India specific findings

  • The Purchasing Power Parities (PPPs):
    • PPP of Indian Rupee per US$ at Gross Domestic Product (GDP) level is now 20.65 in 2017 from 15.55 in 2011. 
  • The Exchange Rate
    • The Exchange Rate of US Dollar to Indian Rupee is now 65.12 from 46.67 during the same period. 
  • The Price Level Index (PLI):
    • It is the ratio of a PPP to its corresponding market exchange rate that is used to compare the price levels of economies.
    • Price Level Index (PLI) of India is 47.55 in 2017 from 42.99 in 2011.
  • Comparison with the world:
    • In 2017, India retained and consolidated its global position, as the third-largest economy, accounting for 6.7 percent ($8,051 billion out of World total of $119,547 billion) of global Gross Domestic Product (GDP) in terms of PPPs.
    • Comparatively China has 16.4% and the United States has 16.3% of Global GDP respectively. 
    • India is also the third-largest economy in terms of its PPP-based share in Global Actual Individual Consumption and Global Gross Capital Formation.
  • Regional Status: ASIA-PACIFIC REGION
    • In 2017, India retained its regional position, as the second-largest economy, accounted for 20.83 % of Regional Gross Domestic Product (GDP) in terms of PPPs.
      • China was at 50.76% (first) and Indonesia at 7.49% (third).

 

What Is Purchasing Power Parity (PPP)?

  • It is a popular macroeconomic analysis metric to compare economic productivity and standards of living between countries. 
  • PPP is an economic theory that compares different countries' currencies through a "basket of goods" approach.

 

The International Comparison Program (ICP)

  • It is the largest worldwide data-collection initiative, under the guidance of the UN Statistical Commission (UNSC), with the goal of producing Purchasing Power Parities (PPPs) which are vital for converting measures of economic activities to be comparable across economies. 
  • Along with the PPPs, the International Comparison Program (ICP) also produces Price Level Indices (PLI) and other regionally comparable aggregates of GDP expenditure.
  • India and ICP
    • India has participated in almost all ICP rounds since its inception in 1970. 
    • The Ministry of Statistics and Programme Implementation is the National Implementing Agency (NIA) for India, which has the responsibility of planning, coordinating, and implementing national ICP activities. 
    • India has also been a co-Chair of the ICP Governing Board along with Statistics Austria for the ICP 2017 cycle.
Image Source: WB