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India 3rd largest economy by 2011-12?
Wed, 21 Sep Pre-Open

It took a nuclear and tsunami jolt to make prospects of India look brighter than Japan. If numbers could talk, they would have presented a compelling story of India replacing Japan at third spot in the global economic rankings as per purchasing power parity (PPP) (it means that the exchange rate between two countries should equal the ratio of the two countries' price level of a fixed basket of goods and services. When a country's domestic price level is increasing i.e., when a country experiences inflation, that country's exchange rate must depreciated in order to return to PPP).

This was something expected in 2013-14. However, the massive destruction caused by the tsunami and the earthquakes have dragged down the growth expectations for the Japanese economy. If Japan contracts and India expands at 7%-8% respectively this fiscal year, being number three won't take longer than the end of this year as per Crisil forecasts.

The recent report may make one wonder what difference it makes to be number three from four. Well, here are the possible implications. It will give our government more influence in international forums and better bargaining power overseas, thus catapulting India from once a recipient nation for foreign aid to a potential saviour of struggling economies in the Eurozone.

However, we believe that the euphoria is misplaced. For one, we will be number three not for intrinsic reasons, but just because the other nation was struck by misfortune. Second, India is a much bigger country than Japan in terms of size, population, resources and opportunities. In such a scenario, we need to be far more ambitious than moving up a notch higher on the world rankings. While we may reach there, to stay there we will need an intrinsic push which includes a combination of regulatory reforms, weeding out corruption, and addressing the inflation and fiscal issues.

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1 Responses to "India 3rd largest economy by 2011-12?"

J Chacko

Sep 20, 2011

It is the per capita GDP that matters and not the total GDP. Only the per capita GDP gives the correct picture of a nation's prosperity. Where do we stand here? It would be below 100 anong the world nations.

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