India is still the third largest economy in terms of purchasing power parity
A social media post claims that from being third largest economy in 2011, India has slipped to 164th fastest growing nation in the world in 2021. Through this article let’s fact-check the claim made in the post.
Claim: From being third largest economy in 2011, India has slipped to 164th fastest growing nation in the world in 2021.
Fact: It is true that India was ranked as the third largest economy in 2011 by ICP (World Bank) and is also ranked at 164th fastest growing economy in 2021 by IMF. However the comparison of these rankings is not correct, as the 2011 calculation is based in terms of PPP, whereas the 2021 calculation is based on real GDP at market prices. Moreover, contrary to the claim, India is still the third largest economy in terms of PPP after China and US. And also as per the same IMF report, India initially ranked at 8th position in terms of real GDP growth for the year 2021. Hence the claim made in the post is MISLEADING.
While both rankings with regards to Indian GDP mentioned in the post are true, the comparison is not appropriate. To get clarity, let us look into each of the rankings in detail below.
India is 164th fastest growing nation :
International Monetary Fund (IMF) in its World Economic Outlook released in October 2020, projected India’s GDP growth at constant prices as -10.28% and 8.8% for the years 2020 & 2021 respectively.
Though this report did not provide any rankings with respect to these projections. Statistics Times, a data portal provided relative rankings of the countries based on these projections of IMF. In these rankings, India with -10.28% projected GDP growth for the year 2020 stood at 164th position among all the countries. Most likely, this is the rank referred to in the viral post.
It is noteworthy to mention that Statistic Times had initially ranked India as 8th fastest growing country for the year 2021, as per the same IMF projections.
However, later on as per the provisional estimates released by the National Statistical Office, GDP growth rate of India for the year 2020-21 stood at -7.3%. Statistics Times later updated the ranking based on the actual figures and India’s rank was adjusted to 143 accordingly.
India 3rd largest economy in 2011:
In 2014, International Comparison Programme along with the World Bank released a survey that ranked the countries GDP in terms of Purchasing Power Parity (PPP). As per this survey, India became the third largest economy after US and China for the year 2011.
Comparison is not appropriate :
Here, it is to be noted that the comparison of GDP metrics (for the years 2011 & 2021) made in the viral post is not rational, as the 2011 GDP is calculated in PPP terms, whereas the 2021 is calculated in real terms. The difference between the real GDP & the GDP calculated in PPP terms can be known below.
Purchasing Power Parity (PPP) is a metric calculated by comparing the value of a standard basket of goods across countries. It indicates the purchasing power of a nation’s currency when compared to others. Simply put, the unit currency value of each nation is converted to dollars and then compares the purchasing power by measuring the number of goods which can be bought across nations from the standard basket of goods. Usually, PPP is used to compare income levels, standard of living and economic activity using different currencies through a basket of goods.
On the other hand, real GDP is a measure that reflects the total value of all goods and services produced in an economy in a given year after adjusting to inflation.
Though economists usually calculate GDP of a nation in both real and PPP terms, the appropriate way to measure depends on the issue being considered. For example, calculating real GDP would be better option if we had to calculate the flow of financial resources in a given year, whereas the calculation of GDP in terms of PPP would be a better option if we have to calculate the standard of living in a country when compared to other countries.
Current Indian GDP in terms of PPP & constant prices :
It is noteworthy to mention that India is still the third largest economy in terms of purchasing power parity. According to the latest report released by the International Comparison Programme in 2020, India retained it s position as the third largest economy for the year 2017, after China and US.
In fact, the purchasing power parity of the rupee per dollar at GDP level rose to 20.65 in 2017 from 15.55 in 2011.
And as far as the latest IMF forecast is concerned, World Economic Outlook had projected a growth rate of 8.2% for the year 2022.
To sum it up, India is still the third largest economy in terms of purchasing power parity.