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In its latest world economic outlook growth estimates, the International Monetary Fund (IMF) for the first time has used Purchasing Popwer Parity (PPP) exchange rates to measure world GDP and contribution to global GDP by individual countries.
As a result it reduced India’s contribution to world GDP in PPP terms from 6.4 percent in 2007 to 4.6 percent. Similarly, it cut China’s share in world GDP from 15.8 percent to 10.8 percent. Consequently, U.S. contribution to world GDP has been revised upwards from 19.3 percent in 2007 to 21.4 percent. Global growth has also been revised from 5.2 percent in 2007 to 4.9 percent due to the PPP weights, according to a report in Business Standard.
The new measurement method is the result of a comprehensive survey by the World Bank, the Asian Development Bank and other development banks in various countries in 2005. The survey found that the contribution by countries like China and India to world GDP has been overstated, Joshua Felman, senior resident representative of IMF in India said.
PPP rates are an alternative way of comparing exchange rates between countries using a comparison of prices for a basket of goods and services in different countries. The PPP rate is defined as the amount of a particular currency needed to purchase the same basket of goods and services in various countries. The PPP rate can deviate from the market exchange rate due to influence of international trade and capital flows.
