End of the day.
Per capita GDP (PPP)
129 India 3,694 2011
137 Pakistan 2,787 2011
32% lower and the difference increasing every day.
HDI
Medium human development
134 steady India 0.547 increase 0.005
Low human development
145 steady Pakistan 0.504 increase 0.001
Pakistan needs help from the world and us, not this pathetic bluster.
But for that, it has to first get rid of these bigots that are keeping it down by the pathetic diversions and pillow technology.
HDI is inadequate but India's PPP GDP is outright bogus.
Here's an interesting explanation in The Hindu on PPP or purchasing power parity correction factor:
...A $ 100 note is exchangeable today at around Rs 4,500. But with Rs 4,500, you can buy more goods and services in India than with $100 in the US.
Therefore, India's GDP expressed in dollars at current exchange rates is lower than what it would be when adjusted for PPP, i.e. the exchange rate reflecting a currency's effective local buying power.
The Survey estimates India's PPP correction factor at 2.9, meaning the stuff available here for $100 will cost $290 in the US. That corresponds to an exchange rate of roughly Rs 15.5 to the dollar. But the interesting bit is about the linkage with GDP. Countries with per capita GDP of $1,000-1,400 in 2009 – which include India, Pakistan and Vietnam — have an average PPP adjustment factor of 2.3.
In comparison, those with per capita GDP (unadjusted for PPP) between $8,000-12,000 — the likes of Brazil, Mexico, Russia and Turkey – require a correction of only 1.6 or thereabouts.
From this follows the conclusion that as economies grow, the required PPP adjustment also falls. Thus, India currently has a per capita GDP of $1,300 with a PPP correction of 2.9.
If the present high growth rates continue, its per capita GDP would touch $10,000 in 2039. By then, its PPP correction factor, too, would have dropped to 1.6, implying that the same basket of commodities costing $290 in the US (assuming no inflation there) will now be available here for $181, as against the earlier $100 level.
The fall in the PPP adjustment factor from 2.9 to 1.6 by 2039, in turn, entails either (a) an appreciation of the rupee to Rs 24.9 to the dollar or, (b) prices in India rising cumulatively by 81 per cent or 2 per cent per annum in constant dollars or, (c) a combination of both. Assuming three-fourths of the reduction to happen via (b), it would translate into an average annual dollar price inflation of 1.5 per cent in India. And that is what the Survey (more precisely, Dr Basu) calls ‘PPP catch-up inflation'.
Elegant though this formulation is — as is to be expected from our erudite Professor — it is not without flaws.
The order of catch-up
The main problem has to do with the direction of causality. Does inflation result from PPP levels aligning themselves closer to market-determined exchange rates? Or, is it just the other way round, wherein inflation is a cause rather than effect of PPP catch-up? The Basu formulation — an adaptation of the so-called Balassa-Samuelson effect — seemingly presumes PPP catch-up to be the causal variable, which necessarily engenders inflation.
To quote from the Survey: “…due to this apparent fall in the PPP correction factor, there would be some increase in prices…(The country) would face an inflation of 2 per cent per annum solely on account of this PPP adjustment”.
In the real world, however, things probably work in the reverse. As inflation erodes the rupee's domestic purchasing power, the basket of goods and services that can be bought with Rs 4,500 will shrink over time. Assuming no corresponding depreciation of the rupee, domestic prices would increasingly approach global levels.
In the process, the PPP exchange rate is driven nearer to the market-determined exchange rate. We are, in other words, talking of ‘inflation catch-up PPP' as opposed to ‘PPP catch-up inflation'!
Lamb vs. Tiger
The phenomenon of ‘inflation catch-up PPP' can be seen in India, where the rupee has, over the years, emerged as a ‘lamb' at home and a ‘tiger' abroad. Since 2004-05, it has depreciated by hardly 4 per cent against the dollar, which is way below the 46 per cent rise in the all-commodities wholesale price index..
Business Line : Columns / Harish Damodaran : Inflation, exchange rates and PPP
