International

In terms of purchasing power parity, India overtakes Japan

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There is something to cheer on the economic front. India has overtaken Japan to become the world’s third-largest economy in purchasing power terms.  The data 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.

The IMF data also shows that India’s share in world GDP in terms of PPP, a measure of relative consumer prices across countries, stood at 5.65 percent in 2011 against Japan’s 5.63 percent, 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 percent compared with 4.8 percent for Japan.

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.

According to analysts, India’s move up the league table is an indication of the boundless potential the country offered, despite the prevailing mood of pessimism.

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