From UPSC perspective, the following things are important :
Prelims level : ICP, PPP
Mains level : India's GDP related issues
The World Bank has released its ICP report for the reference year 2017. India has retained its position as the third-largest economy in the world in terms of purchasing power parity (PPP), behind the US and China.
Try this MCQ:
Q. The International Comparison Programme (ICP) Report recently seen in news is released by: IMF/World Bank/OECD/None.
The International Comparison Programme (ICP)
- ICP is one of the largest statistical initiatives in the world.
- It is managed by the World Bank under the auspices of the United Nations Statistical Commission.
- Globally 176 economies participated in the 2017 cycle of ICP. The next ICP comparison will be conducted for the reference year 2021.
The main objectives of the ICP are:
(i) To produce purchasing power parities (PPPs) and comparable price level indexes (PLIs) for participating economies;
(ii) To convert volume and per capita measures of gross domestic product (GDP) and its expenditure components into a common currency using PPPs.
Highlights of the report
- India accounts for 6.7% or $8,051 billion, out of the world’s total of $119,547 billion of global GDP in terms of PPP compared to 16.4 % in case of China and 16.3 % for the US.
- India is also the third-largest economy in terms of its PPP-based share in global Actual Individual Consumption and Global Gross Capital Formation.
- In the Asia-Pacific Region, in 2017, India retained its regional position, as the second-largest economy, accounting for 20.83 % in terms of PPPs.
- China was first at 50.76% and Indonesia at 7.49% was third.
- India is also the second-largest economy in terms of its PPP-based share in regional Actual Individual Consumption and regional Gross Capital Formation.
Trends in INR
- The PPPs of Indian Rupee per US$ at the GDP level is now 20.65 in 2017 from 15.55 in 2011.
- The Exchange Rate of US Dollar to Indian Rupee is now 65.12 from 46.67 during the same period.
Significance of PPP
- Purchasing Power Parities are vital for converting measures of economic activities to be comparable across economies.
- It is calculated based on the price of a common basket of goods and services in each participating economy and is a measure of what an economy’s local currency can buy in another economy.
- Market exchange rate-based conversions reflect both price and volume differences in expenditures and are thus inappropriate for volume comparisons.
- PPP-based conversions of expenditures eliminate the effect of price level differences between economies and reflect only differences in the volume of economies.