India became third largest Economy: World Bank


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

According to data released in April 2014 by the International Comparison Program (ICP), hosted by the Development Data Group at the World Bank Group, in terms of purchasing power parity (PPP) India emerged as the world’s third-largest economy in 2011 from the tenth largest in 2005, moving ahead of Japan, while the US remained the largest economy closely followed by China. The economies of Japan and the UK became smaller relative to the US, while Germany increased slightly and France and Italy remained the same. In the latest ranking, India's economy was 37.1 per cent of the US economy compared with 18.9 per cent in 2005.
One major use of PPPs is poverty assessment using the World Bank's international poverty threshold of $1.25 per day per person. National poverty assessments differ because the purchasing power of national currencies differs from one economy to another. In terms of per capita GDP, even in PPP terms, India ranks very low at 127 in the 199-country ranking.
The relative rankings of the three Asian economies — China, India, and Indonesia — to the US doubled, while Brazil, Mexico and Russia increased by one-third or more. The world produced goods and services worth over USD 90 trillion in 2011 and that almost half of the total output came from low and middle-income countries, it said.
According to the major findings of the ICP, six of the world’s 12 largest economies were in the middle-income category (based on the World Bank’s definition). When combined, the 12 largest economies accounted for two-thirds of the world economy and 59 per cent of the population.
The purchasing power parities (PPPs)-based world GDP amounted to USD 90,647 billion, compared with USD 70,294 billion measured by exchange rates, it said, adding that the share of middle-income economies in global GDP is 48 per cent when using PPPs and 32 per cent when using exchange rates.
The six largest middle-income economies — China, India, Russia, Brazil, Indonesia and Mexico — account for 32.3 per cent of world GDP, whereas the six largest high-income economies — US, Japan, Germany, France, UK and Italy — account for 32.9 per cent.
Asia and the Pacific, including China and India, account for 30 per cent of world GDP, Eurostat—OECD 54 per cent, Latin America 5.5 per cent (excluding Mexico, which participates in the OECD and Argentina, which did not participate in the ICP 2011), Africa and Western Asia about 4.5 per cent each.
China and India make up two-thirds of the Asia and the Pacific economy, excluding Japan and South Korea, which are part of the OECD comparison. Russia accounts for more than 70 per cent of the CIS, and Brazil for 56 per cent of Latin America. South Africa, Egypt, and Nigeria account for about half of the African economy.
At 27 per cent, China now has the largest share of the world’s expenditure for investment (gross fixed capital formation) followed by the US at 13 per cent. India, Japan and Indonesia follow with 7 per cent, 4 per cent, and 3 per cent, respectively. China and India account for about 80 per cent of investment expenditure in the Asia and the Pacific region. Russia accounts for 77 per cent of CIS, Brazil for 61 per cent of Latin America and Saudi Arabia 40 per cent of Western Asia, it said.
The report said low-income economies, as a share of world GDP, were more than two times larger based on PPPs than respective exchange rate shares in 2011.Yet, these economies accounted for only 1.5 per cent of the global economy, but nearly 11 per cent of the world population. Roughly 28 per cent of the world’s population lives in economies with GDP per capita expenditure above the USD 13,460 world average and 72 per cent are below that average. The approximate median yearly per capita expenditure for the world — at USD 10,057 — means that half of the global population has per capita expenditure above that amount and half below, it said.
The five economies with the highest GDP per capita are Qatar, Macao, Luxembourg, Kuwait and Brunei. The first two economies have more than USD 100,000 per capita. Eleven economies have more than USD 50,000 per capita, while they collectively account for less than 0.6 per cent of the world’s population. The US has the 12th—highest GDP per capita.
Eight economies — Malawi, Mozambique, Central African Republic, Niger, Burundi, Congo, Dem. Rep., Comoros and Liberia — have a GDP per capita of less than USD 1,000. The five economies with highest actual individual consumption per capita are Bermuda, US, Cayman Islands, Hong Kong and Luxembourg.The world average actual individual consumption per capita is approximately USD 8,647.
Purchasing Power Parity (PPP)
An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power. PPP is used worldwide to compare the income levels in different countries. PPP thus makes it easy to understand and interpret the data of each country.
The theory aims to determine the adjustments needed to be made in the exchange rates of two currencies to make them at par with the purchasing power of each other. In other words, the expenditure on a similar commodity must be same in both currencies when accounted for exchange rate. The purchasing power of each currency is determined in the process.
The relative version of PPP is calculated as:
S = P1/P2
Where:
"S" represents exchange rate of currency 1 to currency 2
"P1" represents the cost of good "x" in currency 1
"P2" represents the cost of good "x" in currency 2
In other words, the exchange rate adjusts so that an identical good in two different countries has the same price when expressed in the same currency.
Purchasing power parity is used worldwide to compare the income levels in different countries. PPP thus makes it easy to understand and interpret the data of each country. Let's say that a pair of shoes costs Rs 2500 in India. Then it should cost $50 in America when the exchange rate is 50 between the dollar and the rupee.
 
 

Wednesday, 30th Apr 2014, 07:52:12 PM

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