Indian Economy Now World’s Third Largest Says World Bank

May 1, 2014 Posted by India Briefing Reading Time: 2 minutes

DELHI – A report released Tuesday by the World Bank’s International Comparison Program ranks India as the world’s third largest economy in terms of purchasing power parity (PPP). Based on this measure, the overall Indian economy is now worth more than US$ 5.75 trillion, displacing Japan’s hold on the number three position. This is a significant jump from India’s 10th-place ranking in the previous report issued in 2005.

Notably, the report also places China hot on the heels of catching up with the U.S. as the world’s largest economy, stating “The United States remained the world’s largest economy, but it was closely followed by China when measured using PPPs. India was now the world’s third largest economy, moving ahead of Japan.”

The report evaluated 199 economies according to PPP, an economic index commonly used to compare economies by adjusting for differences in prices between countries – said to result in a more accurate comparison, as it takes stock of the fact that US$1 goes a lot further in India than in the U.S.

Some analysts have questioned the accuracy of the report’s findings, however, on the grounds that PPP comparisons have been known to fluctuate greatly according to how local prices are determined. Further, in the previous report in 2005, prices are thought to have been overestimated, leading the economies of developing nations to appear smaller than was actually the case. It may be that price estimates in Tuesday’s report have swung the opposite way, resulting in exaggeratedly high rankings for India and China.

For this reason, PPP is typically thought to be more suitable for the comparison of similar countries in terms of economic development. The report itself notes a margin of error of plus or minus 15 percent.

In comparison, when viewed in terms of absolute un-adjusted dollars – net economic worth in U.S. dollars – the Indian economy ranks 12th largest globally.

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