SHASH2K2
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NEW DELHI: Did China overtake the US as the world's biggest economy in 2010? New numbers for the GDP of different countries at purchasing power parity (PPP) seem to suggest so. They also suggest India's economy is significantly bigger than previously thought.
While market exchange rates have traditionally formed the basis for comparison of GDP across countries , this method increasingly came under criticism as it did not take into account the differential costs of goods and services in countries at different levels of development. As a result, the idea of PPP, in which the prices of a basket of goods and services forms the basis of comparison, came into being. While various agencies, including the IMF, calculate GDP at PPP, the Penn World Tables brought out by the Center for International Comparisons at the University of Pennsylvania (CICUP) since 1970 have come to be regarded among economists as the definitive source.
The yet-to-be-released latest version of the Penn World Tables corrects for biases in past measurements , such as the collection of only urban prices in China, which resulted in China's GDP being understated . Factoring in these corrections has resulted in China's GDP at PPP being revised upwards by 27% and India's by 13% for the year 2005, CICUP data made available to TOI show.
Economist Arvind Subramanian, senior fellow at the US-based nonpartisan Petersen Institute for International Economics, used the Penn revision as his base to calculate China's GDP for 2010. In his calculations , Subramanian corrected another key anomaly in the calculation of China's GDP, which was the overstatement of its currency appreciation.
The adjustments increase China's GDP from the current estimate of $10.1 trillion to $14.8 trillion (an increase of 47%, of which 27% is due to the revision in the 2005 estimate, and the rest due to smaller-thanassumed increases in the cost of living between 2005 and 2010). This $14.8 trillion figure exceeds US GDP of $14.6 trillion, Subramanian said.
"The revised number for India's GDP measured in PPP terms is, in my view, the IMF's 2010 number increased by 13%. So the revision required is not nearly as much as for China. The IMF's number for India is about $4 trillion, and I would put it at close to $4.4 trillion (again in PPP terms),'' Subramanian explained to TOI via email. In terms of world rankings, India would remain the fourth largest economy then behind China, the US and Japan.
Read more: Has China surpassed US in GDP? - The Times of India http://timesofindia.indiatimes.com/...-in-GDP/articleshow/7333230.cms#ixzz1BhhiOIJN