MercoPress. South Atlantic News Agency

W. Bank “downsized” India's economy to fifth world largest

Can India maintain its huge growth rate?

The World Bank says India and China are not what they are pumped up to be. The Bank has “downsized” the economies of the two Asian giants by nearly 40% under new metrics, which it says are more reliable and accurate than previous estimates

The International Comparison Program (ICP) data, released by the World Bank this week, lists new estimates of purchasing power parities (PPPs) for 100 countries benchmarked to the year 2005. According to the new data, India's GDP in PPP terms was 2.34 trillion US dollars in 2005 and in nominal dollar terms was 778.7 billion US dollars. Prior to the revision, India's GDP in PP terms was 3.8 trillion in 2005 and had grown to over 4 trillion in the current year. As a result of the revisions, India's share in global GDP in 2005, which has also been revised downwards from more than 68 trillion in the earlier estimates to just under 55 trillion, came down sharply from 6.2% to 4.3%. This would make India the world's fifth largest economy in 2005 behind the US (which accounted for 22.5% of the global GDP), China (9.7 %), Japan (7.0%) and Germany (4.6%). In the earlier estimates, India was a comfortable fourth, well ahead of Germany and close behind Japan. Even under the revised PPP figures, India is likely to have overtaken Germany this year, having grown at about 9% for two successive years. PPP is an apples-to-apples comparison of buying power in different countries taking into account price differences. The Bank said the new data was based on a study in which India participated for the first time since 1985 and China for the first time ever. The earlier estimates were therefore based on data that was outdated or incomplete or both. For the new study, which the Bank said was the most extensive and thorough effort ever to measure PPPs across countries, teams in each region identified characteristic goods and services to be priced. Surveys conducted during 2005 collected prices for more than 1,000 goods and services to arrive at the new numbers. All previous PPP estimates were extrapolated from other figures, the Bank said. The revised estimates also downsized China's economy, although it remained the second largest economy behind the US. China's economy under the new metrics was 5.3 trillion US dollars in PPP in 2005 terms against the 8.8 trillion estimated earlier. Its share of world GDP came down from 14.5% in the earlier estimates to 9.7% in the latest figures. One interesting fall-out of the revised estimates is that they dilute India's and China's demand for increased voting weight at the World Bank and IMF based on their economic size under the old PPP figures. Although there has been a consensus in the Bank-Fund that PPP should be taken into account to determine voting muscle, the latest results are a setback for the Asian giants in terms of potential voting clout. The revised estimates show that between them the US, China, Japan, Germany and India (the five largest economies) account for nearly half of the world's GDP as measured by PPPs. The BRIC countries (Brazil, Russia, China and India) now account for almost exactly 20% of global GDP against the earlier estimate of close to 26%. The revised figures mean that per capita GDP in PPP terms in India is down to 2,126 US dollars just over half the figure of 4,091 for China. Brazil has a per capita PPP GDP that is more than twice that of China at 8,605 and Russia's number is 11,866 showing the very wide range of levels of affluence within the BRIC countries. These are by far the poorest among the 10 biggest economies, with even sixth ranked Italy having a per capita GDP in terms of PPP of almost 28,000 US dollars and the US at 41,670 heading the list within these 10.