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India, China buying power dips

business Updated: Dec 18, 2007 21:22 IST
Gaurav Choudhury

The Indian and Chinese economies might actually be smaller in size in terms buying power than was originally thought to be, a new World Bank study has found.

The International Comparison Program (ICP) of the World Bank has released new data that show that China, which was previously estimated to have 14 per cent of global gross domestic product (GDP), now has 9 per cent. India’s share has been revised from 6 per cent to 4 per cent.

“But it must be emphasised that these are changes in estimates, the previous ones having been based on very old and very limited data. The real outputs of their economies have not changed, only the way we measure them has,” the study said.

The data shows that the world economy produced goods and services worth almost $55 trillion in 2005 and that almost 40 per cent of the world’s output came from developing economies. Carried out with the World Bank and other partners, the preliminary global report provides estimates of internationally comparable price levels and the relative purchasing power of currencies for 146 economies.

The estimates are based on purchasing power parities (PPPs) benchmarked to the year 2005. PPPs are used instead of exchange rates to convert national economic measures such as gross domestic products into a common currency.

By taking into account price differences between countries, PPPs allow comparisons of market size, the structure of economies, and what money can buy.

Analysts believe that the findings of the report could have political ramifications in the influential voting system largely determined by buying power of economies, of multi-lateral funding agencies, including the International Monetary Fund.

The GDP of high-income economies accounts for 61 per cent of the world economy, received by only 16 per cent of the world’s population. Compared with previous estimates, the relative size of developing economies has decreased by 7 percentage points or one-sixth.