Topic– Part of static series under the heading – “Purchasing power parity”
2) When it comes to GDP figures, GDP measured through PPP overestimates India’s social and economic growth. Critically analyze.(250 words)
Key demand of the question
The question expects us to explain what PPP measurement of GDP is and how good an indicators is PPP based GDP in evaluating the socio economic progress of the country. We need to present both sides of the debate and end with a fair and balanced conclusion
Structure of the answer
Introduction – Explain what PPP measurement of GDP is – Purchase Power Parity gives an idea about the strength of nation’s currency when pegged against currency of another nation on the basis of buying same quality of goods/services in their respective nations. India’s nominal GDP is 10th in world while when calculated on PPP basis it is third only after US and China.
- Explain that based on this technique the GDP calculated does indeed highlight that India has great growth potential. However this growth story comes with caveat of huge economic inequality. It proves that GDP ranking based on PPP is not correct measure of socio-economic development because it presents relative strength of currency for huge GDP in India. As India is huge in economy, resource rich and cheap in service, hence Goods/Services are cheaper here. Hence, our PPP is higher.
- Highlight that because of our diverse demography, economy activities, economic disparity between Rural and Urban, we need a more robust analysis of growth based on
- Nominal GDP for GDP indexing
- HDI for human development and prosperity measurement
- Gender based GDP to give gender-wise production.
- GDP share by Rural and Urban settlements. Sector wise GDP and growth
Conclusion – Give a fair and balanced view on the hypothesis made in the question.