India’s GDP Rise: Numbers, Methods, and Misconceptions

India’s GDP Rise: Numbers, Methods, and Misconceptions

Why in the News ?

The IMF’s 2024 estimates and projections suggest India may surpass Japan to become the world’s fourth largest economy by 2025. This has triggered political claims of success, sparking a deeper debate on how GDP rankings are calculated and interpreted.

India’s GDP Rise: Numbers, Methods, and Misconceptions

Understanding GDP Rankings and Measurement Methods:

  • India’s projected GDP for 2025 is $4,187 billion, slightly ahead of Japan’s $4,186 billion, making India the 4th largest economy by market exchange rates.
  • Two main methods to convert GDP to S. dollars:
    • Market Exchange Rates (MER): Reflects current forex values; volatile and misleading for cross-country or long-term comparisons.
    • Purchasing Power Parity (PPP): Adjusts for price level differences; offers a more accurate economic comparison across countries.
  • India ranks 3rd in GDP since 2009 when measured by PPP, not MER.

Limitations of GDP as a Development Metric

  • GDP alone doesn’t capture well-being, health, education, or income inequality.
  • It ignores informal sectors, such as unpaid female labour, common in India.
  • Statistical systems in India are often politicised, skewing public perception of economic performance.
  • Example: Niti Aayog’s inflated PPP claim of India reaching $15 trillion GDP, despite actual market GDP being a third of it.

The Illusion of Size vs Real Progress

  • Per capita GDP in 2024 was only $2,711; India ranks 144th
  • Comparatively, Vietnam’s per capita GDP rose to $4,536 from just $141 in 1991, overtaking India.
  • True development lies in social indicators, not just total GDP — such as access to education, healthcare, and living standards.
  • The “big economy illusion” masks deep economic inequality and underdevelopment.

About GDP (Gross Domestic Product):

●      GDP is the total monetary value of goods and services produced in a country within a given period.

●      It indicates the size of an economy, but not the quality of life.

●      It excludes unpaid and informal work.

●      GDP can be measured at market prices or adjusted using PPP.

Purchasing Power Parity (PPP)

●      PPP adjusts GDP using an exchange rate that equalizes the purchasing power of different currencies.

●      Reflects actual cost of living and inflation better than market rates.

●      Helps compare real output and consumption between countries.

●      Inflates GDP estimates for poorer nations due to lower wages and prices.

Key points : IMF (International Monetary Fund)

●      The IMF is a global financial institution that monitors economic trends, provides loans, and publishes GDP data.

●      It offers both market exchange rate-based and PPP-based GDP estimates.

●      IMF data often influences global rankings and policy narratives.

●      Its projections are widely cited in economic debates and government claims.

Key pints : Per Capita GDP

●      Per capita GDP = GDP ÷ Population; reflects average income.

●      Offers a better insight into individual economic well-being.

●      India’s low per capita GDP highlights large population and income inequality.

●      Rankings in both market and PPP terms show India lagging behind smaller but more developed nations.