Posted on 30 Apr 2014
India has displaced Japan to become the world's third biggest economy in terms of purchasing power parity (PPP), according to a World Bank report released on Tuesday.
The 2011 round of the bank's International Comparison Program (ICP) ranked India after the US and China. The last survey in 2005 had placed the country on 10th place.
PPP is used to compare economies and incomes of people by adjusting for differences in prices in different countries to make a meaningful comparison.
India's share in World GDP in terms of PPP was 6.4% in 2011 compared with China's 14.9% and the US' 17.1%, the latest ICP showed. The survey covered 199 economies.
"The United States remained the world's largest economy, but it was closely followed by China when measured using PPPs. India was now the world's third largest economy, moving ahead of Japan," the report said.
Despite high inflation in India in recent years, prices in the country are still well below those in advanced economies, explaining the higher raking for India on the PPP measure. But according to the International Monetary Fund (IMF), India's economy is 12th largest and only about a third of Japan's in terms of absolute unadjusted dollars. "The economies with the lowest prices are either in Africa or Asia and the Pacific and include India, which has the third-largest economy," the report note ..
"Because economies estimate their GDP at national price levels and in national currencies, those GDPs are not comparable. To be compared, they must be valued at a common price level and expressed in a common currency," the report said, giving out the rationale for the PPP adjustments.
