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      • Viral Graphic Comparing India's GDP...
      Economy

      Viral Graphic Comparing India's GDP Size Across Years Is Misleading

      The comparison pits India's economic size measured in PPP in 2016 to its size measured in current prices in 2022

      By - Mohammed Kudrati |
      Published -  15 Oct 2022 12:30 PM IST
    • Boomlive
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      Viral Graphic Comparing Indias GDP Size Across Years Is Misleading

      A viral image, that compares the snapshots of two headlines, purporting to show that Prime Minister Narendra Modi made a blunder in a speech where he compares India's economic size from 2014 to 2022, is misleading.

      The contents of the image compares two snapshots. In the first snapshot, Modi is quoted as saying that the Indian economy was the fifth largest in 2022 and the tenth largest in 2014, when his government first came to power. The second snapshot, which juxtapositions the first, is a headline by The Hindu as stating that India had already become the third largest in the world in 2011.

      Data show that both headlines report based on different yardsticks in calculating the size of the economy and are not at conflict with each other.

      Modi is citing data from the International Monetary Fund as of late 2022, where India ranks fifth globally in terms of gross domestic product (GDP), measured in nominal prices. The second snapshot from The Hindu is from 2016, which has data from the United Nations' International Comparison Program (ICP), whose data is with the World Bank which enables the comparison of the GDP values of various economies based on the concept of purchasing power parity.

      BOOM received the image on its helpline (7700906588) and can be seen below.


      Claim recieved by BOOM



      View this post on Instagram

      A post shared by 𝓐 rundhati (@polytikles)

      Also Read: Is India No More World's 3rd Largest Economy? A FactCheck

      FactCheck

      BOOM was able to ascertain that both snapshots are based on different datasets from different years and are different approaches to calculate GDP.

      The difference in these rankings is based on these varying approaches to estimate the size of the economy, and the headlines compared in the content of the image are not at odds with each other.

      Approach 1. GDP In Nominal prices

      When Modi said that India was the tenth largest economy in 2014 and fifth largest in 2022, he was referring to GDP in nominal prices. This ranking reflects in the data available with the IMF released this week as part of the October 2022 revision to its flagship publication called the 'World Economic Outlook'.

      Also Read: IMF Follows RBI, World Bank In Cutting India's Growth Forecasts For FY23

      An economy produces goods and services within its borders, and GDP measures it in money terms in a given time period. GDP in nominal terms measures this output of goods and services at the going market prices.

      This can be measured either in the local currency of the economy, or by an international body like the IMF by converting the going prices into a single currency (usually dollars) at a determined exchange rate.

      By this approach, the data shows that in 2022, India is the fifth largest economy in the world, measuring $3.46 trillion. It ranks fifth after the United States ($25 trillion), China ($20.25 trillion), Japan ($4.3 trillion) and Germany ($4.03 trillion).

      According to the data, and by several estimates earlier this year, India supplanted the United Kingdom as the fifth largest economy in the world. The United Kingdom ranks sixth, valued at $3.2 trillion.

      In 2014, according to the same data, India - valued at $2.039 trillion - ranked tenth in the world, after the United States, China, Japan, Germany, the United Kingdom, France, Brazil, Italy and Russia.

      The data can be downloaded from here. The data should be as of October 2022. It has the values of GDP calculated in nominal prices starting from 1980.

      Approach 2: Purchasing power parity

      The data quoted by The Hindu headline is from 2016, and it reports on the India's position in economic size measured in purchasing power parity (PPP) from the United Nations' International Comparison Program, whose data is available with the World Bank.

      The concept of PPP is one of the approaches used to overcome the hindrance in internationally comparing social and economic metrics as countries report data in their own currencies, which cannot immediately and easily be compared.

      Therefore, international questions like "Where is the average person better off?" and "Which country contributes the most to global growth?" that involve comparisons can be made using PPP, according to the IMF.

      Officially, the IMF defines PPP as:

      The rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country.

      A popular and lighthearted example of the PPP is illustrated by the Economist magazine, through their 'Big Mac Index', as the Big Mac burger, served by the fast-food chain McDonald's, is sold globally and is a nearly identical good.

      They explain that a Big Mac costs $5 in the United States but 20 yuan in China, establishing a PPP exchange rate between US and China being 1 dollar to 4 yuan if only Big Macs are considered. They go further and use this "Big Mac exchange rate" to evaluate if a currency is overvalued or undervalued versus another. The idea behind the exercise is not to make a formal analysis of currencies, but rather to provide a rudimentary understanding of the concept of PPP.

      Instead of the Big Mac, though, the United Nations' International Comparison Program provides PPP exchange rates determined by formal data on a broader basket of goods and services. The PPP exchange rate can then be used to express the size of one economy in another currency (usually international dollars).

      By this measure, India has the third largest economy according to World Bank, which has International Comparison Program data. This has been the case since 2011, for when the claim was made. Currently, China ($27.31 trillion) is the world's largest economy in terms of PPP, overtaking the United States ($22.99 trillion) in 2016.

      BOOM has plotted the GDP PPP data for 2011 through 2021 for four countries: the United States, China, India and Japan. India has remained a constant third ($10.3 trillion in 2021) and Japan ($5.4 trillion in 2021) a constant fourth. The flip between the United States and China can be seen in 2016.


      A caveat does apply, though. In a note, the World Bank does not recommend that PPP be used as a measure to strictly rank all economies, measure national growth or the value of currencies. It is a value whose use is relative to be used in a comparative use case.

      The data can be obtained from here.



      Tags

      World Bankinternational monetary fundNarendra ModiGDPIndian EconomyIMF
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      Claim :   Modi is wrong in saying that India was the fifth largest economy in 2022 from tenth largest in 2014
      Claimed By :  Users of social media
      Fact Check :  False
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