IMF cuts India's share in world GDP

The International Monetary Fund (IMF) has reduced India's contribution to world gross domestic product (GDP) in purchasing power parity (PPP) terms to 4.6 per cent in 2007 from the earlier estimate of 6.4 per cent.

In its latest World Economic Outlook growth estimates, the IMF has used PPP exchange rates to measure world GDP and contribution to global GDP by individual countries.

"This is for the first time that the IMF has incorporated the new PPP exchange rate in its World Economic Outlook to measure world GDP," said Joshua Felman, senior resident representative of IMF in India.

A fallout of the new method is the reduced contribution to global GDP by emerging economies like India and China. China's share in global output in 2007 is now estimated at 10.8 per cent less than the earlier estimate of 15.8 per cent.

On the other hand, the share of the United States has been revised upwards from 19.3 per cent to 21.4 per cent in 2007.

"The new measurement method is the result of a comprehensive survey by the World Bank, the Asian Development Bank and other development banks in various countries in 2005. The survey found that the contribution by countries like China and India to world GDP has been overstated," Felman said.

However, not everybody agrees. "Output measurement in PPP terms is very controversial. The numbers shown for the Asian countries are terribly off. The data of the IMF is not consistent with other data available," said Surjit Bhalla, chairman, Oxus Investments.

The new estimates of PPP exchange rates were released by the International Comparison Programme (ICP) in December 2007. PPP rates are an alternative way of comparing exchange rates between countries using a comparison of prices for a basket of goods and services in different countries.

The PPP rate is defined as the amount of a particular currency needed to purchase the same basket of goods and services in various countries. The PPP rate can deviate from the market exchange rate due to influence of international trade and capital flows.

The global growth forecast of 3.7 per cent has also been calculated on the basis of the new methodology. Based on the current estimate, the IMF has concluded that there is a 25 per cent chance that global growth will drop to 3 per cent or less in 2008 and 2009 "" equivalent to global recession.

The downward revision of global growth in 2007 to 4.9 per cent from the earlier estimate of 5.2 per cent is mostly due to the revised PPP weights.