Indian elections

A Bigger-Than-Ever Reason to Watch India's Elections


Spending money on white wine in a bar in Maharashtra, India

Photograph by Dhiraj Singh/Bloomberg

Spending money on white wine in a bar in Maharashtra, India

In 2005, India’s gross domestic product, calculated using purchasing power parity (more about that in a moment), was the 10th biggest in the world. In 2011, it leapt over Japan, Germany, and Russia to become third-biggest, behind only the U.S. and China.

That breathtaking bit of economic data, announced today by a statistical project (PDF) backed by the World Bank, suggests the importance of the next prime minister of India and the policies that he might implement.

Nonetheless, as has been pointed out in scathing fashion by comedian John Oliver, Americans have, for the most part, been ignoring the largest democratic exercise on the planet.

This, despite a remarkable campaign in which presumed front-runner Narendra Modi said earlier this month, via 3D telecast no less, that he was chosen by God for the task.

The economic numbers released in a summary of findings by the International Comparison Program, which includes 199 economies, do not calculate a country’s total GDP converted into U.S. dollars—the figure mostly commonly used—but a GDP that takes into account the relative purchasing power of money in the countries.

The program provides a helpful explanation:

Purchasing power parities ”show the ratio of the prices in national currencies of the same good or service in different economies. For example, if the price of a hamburger in France is €4.80 and in the United States it is $4.00, the PPP for hamburgers between the two economies is $0.83 to the euro from the French perspective (4.00/4.80) and €1.20 to the dollar from the U.S. perspective (4.80/4.00). In other words, for every euro spent on hamburgers in France, $0.83 would have to be spent in the United States to obtain the same quantity and quality—that is, the same volume—of hamburgers.”

So this does not mean that India has the world’s third-largest economy. And it does not capture the fact that daily reality for millions of people in such places as India and China is informed by poverty and inequality. The billion-plus population in each nation means that when the PPP figures are broken down to the per capita level, China is 99th in the world and India is 127th.

As a smart piece in the Wall Street Journal points out, while PPP is “useful as a way to get at hidden advantages developing nations have”—i.e., things cost less domestically—”the concept has steep limitations, too. China can’t buy missiles and ships and iPhones (AAPL) and German cars in PPP currency. They have to pay at prevailing exchange rates.”

Here’s the point: India’s GDP, even by more conventional World Bank (PDF) arithmetic, is still the 10th-largest in the world. By any measure, that’s an economy to keep an eye on, as is the question of who might head it next.

Lasseter is a reporter for Bloomberg News in New Delhi.

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