India: Moving Past Japan to World’s Third Largest Economy

Econintersect: India may surpass Japan as the world’s third largest economy in 2011. Japan’s economy has suffered a temporary setback from the March earthquake and tsunami while India appears to be on track for real GDP growth of 7-8% in the current fiscal year. Coming into 2011 India was the fourth largest national economy, behind the U.S., China and Japan, and 38% ahead of number five Germany, according to The World Factbook (2010 estimates). The 2010 estimates had India ($4.06 trillion) narrowly trailing Japan ($4.31 trillion).

The European Union ($14.82 trillion) is actually slightly larger than the U.S. ($14.66 trillion). If the EU is included on the single nation list then every country moves down one peg. Five EU members have top twenty positions in the world ranking: Germany (5), France (9), Italy (10), Spain (13) and Poland (20). Turkey, who has had aspirations to join the EU, has a ranking of 16.

The rankings in The World Factbook are based on GDP at purchasing power parity (PPP) exchange rates. From The World Factbook:

A nation’s GDP at purchasing power parity (PPP) exchange rates is the sum value of all goods and services produced in the country valued at prices prevailing in the United States. This is the measure most economists prefer when looking at per-capita welfare and when comparing living conditions or use of resources across countries. The measure is difficult to compute, as a US dollar value has to be assigned to all goods and services in the country regardless of whether these goods and services have a direct equivalent in the United States (for example, the value of an ox-cart or non-US military equipment); as a result, PPP estimates for some countries are based on a small and sometimes different set of goods and services. In addition, many countries do not formally participate in the World Bank’s PPP project that calculates these measures, so the resulting GDP estimates for these countries may lack precision. For many developing countries, PPP-based GDP measures are multiples of the official exchange rate (OER) measure. The differences between the OER- and PPP-denominated GDP values for most of the wealthy industrialized countries are generally much smaller.

The top 25 economies according to The World Bank are listed in the following table:

Table by The World Bank

As pointed out by Rediff Business, the rankings above have little to do with standard of living in various countries. This would be better represented by GDP at PPP per capita. India ranks 127 on that list (IMF – International Monetary Fund – ranking) and 117 of the list compiled by the World Bank, both rankings quoted from Rediff Business. China is ranked 97 (IMF) and 83 (World Bank). Econintersect has compiled a ranking from the World Bank data, which includes the latest data available, which for most countries is 2010, but for a few is 2009 or 2008. The top 25 GDP countries (PPP) are shaded in pink.

The final related data set is the percent of a country population living in poverty. That ranking is shown in the following table from Index Mundi, based on data from The World Fact Book:

Table by Index Mundi.

The table is represented to be accurate as of January 1, 2011. However, the latest data for the U.S. has 15.1% of the population below the poverty level. (See GEI Analysis.) That would put the U.S. just worse than Morocco and slightly better than Belgium if there are no changes in data for those countries. The latest data has 120 countries with a higher percentage living below the poverty level than the U.S. and has 33 countries with a better poverty level standing.

Among the countries with less poverty than the U.S. are China, Malaysia, Kazakhstan, Tunisia, Vietnam, Azerbaijan and Syria.  With the latest updated data cited above, Russia, Albania and Jordan are among the countries that move into a lower poverty classification than the U.S.

Sources: The Economic Times , The World Factbook, The World Bank, Rediff Business, Index Mundi and GEI Analysis

Hat tip to Sanjeev Kulkarni.