"Although Japan is a richer country, India has already overtaken Japan in terms of the PPP as the purchasing power is now higher in India," Jayshree Sengupta, a prominent economist in India, told Republica.[break]
India is now the fourth-largest economy behind the US, China and Japan. Last year, Japanese economy was worth $4.31 trillion, while India´s was at $4.06 trillion. But after the devastating tsunami and earthquakes in March, Japan´s economy is expected to contract while India´s economy will grow between 7-8 percent this fiscal year.
Besides the World Economic Report and the International Monetary Fund (IMF) report, the new ranking has also been reported by companies like Crisil, which deals in stocks. Economists stated on Tuesday that India should overtake Japan in 2011 to become the third-largest economy in the world at PPP.
IMF forecasts show India and Japan neck-to-neck in 2011, but the disaster in Japan has given India a lead. "Were it not for the earthquake and tsunami, India would have overtaken Japan only in around 2013-14," Sunil Sinha, head of research and senior economist at Crisil, was quoted by Indian media as saying.
The PPP method measures the size of an economy by leveling price differences between countries that occur in the process of conversion to a single currency. Under this method, a dollar should be able to buy the same amount of goods anywhere in the world and exchange rates should adjust accordingly.
"It is like the capacity of buying big Mac burger," Sengupta explained, adding, "PPP looks at the actual amount of goods that currency can buy. And in that case, our purchasing power is higher."
Earlier, a report by PwC suggested that the Indian economy would surpass the Japanese economy in 2012. The IMF expects the Japanese economy to contract 0.7 percent this year while India is expected to grow 8.2 percent.
A bigger economy could also give the government additional clout and bargaining power overseas. It would also mean that India could play much bigger role in international economy.
"Both India and China can play bigger roles in world economy although in India we also have our own problems to deal with like the high inflation and slow industrial growth," Sengupta said. She, however, added, "But India will play larger role in G-20 and BRIC countries."
India could now come together with Brazil, Russia and China to form a fund to stabilize faltering economies in the Eurozone as well.
According to the University of Pennsylvania PPP world tables, India moved ahead of Japan in 2010 itself. The size of the Indian economy is expected to reach almost $5 trillion by the end of 2011.
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