This column analyses the trend in India’s GDP based on PPP (Purchasing Power Parity) as compared to selected countries globally. While Nominal GDP (converting local currency to USD via market exchange rates) is useful for measuring a country's ability to buy things internationally, it is not a robust measure of household welfare and of internal economic scale, as prices and exchange rates are not kept constant globally.

The "Law of One Price" suggests that in a perfectly competitive market, identical goods and services should cost the same everywhere once exchange rates are factored in. However, this only applies to traded goods and services (such as oil or electronics) to the extent their markets are perfectly competitive. Often, even for traded goods and services markets, there exists a varying degree of market power. Moreover, there are non-traded goods and services. In many countries, including India, non-traded goods and services (such as labour-intensive services like haircuts, medical care, education, or house construction) are relatively much cheaper because of a variety of factors, including lower relative wages. As a result, converting GDP at market prices using nominal exchange rates of such countries underestimates the volume of goods and services its citizens consume to varying degrees, resulting in a lack of robustness in measuring household welfare and the scale of the economy.

Estimating GDP on PPP Basis (The ICP Method)

The International Comparison Program (ICP), a global statistical initiative to calculate the PPP exchange rate used by the World Bank and IMF.

The estimation follows these steps:

• The Basket of Goods: Instead of looking at market exchange rates, a common "basket" consisting of hundreds of goods and services is chosen, ranging from basic food items to complex construction projects.
• Price Relatives: Then the prices of this basket in the local currency (e.g., Rupees) are collected and compared to the price of the exact same basket in the United States.

Then the ratio of the prices in local currency to the price of the same item in the base country (usually the US) is estimated. As an example, if an item costs INR 5,000 in India and USD 200 in the US, the PPP exchange rate is Rupees 25 to USD 1, even if the market exchange rate is INR 80 to 1.

The ICP method of estimating the "PPP adjustment" significantly changes the perspective on global economic rankings. First, it results in a reduction in global inequality in incomes, as the PPP basis reduces the gap between the higher and lower income countries. Second, the PPP basis of measuring GDP sharply increases the GDP of middle and low-income countries, more accurately reflecting their share of global production.

Thus, in 2026, Global nominal GDP was USD 124 trillion, while the corresponding PPP GDP was USD 219 trillion. On the nominal GDP basis, the USA, China and Germany have consistently maintained the first, second, and third position globally. But the fourth, fifth, and sixth positions have been changing according to their exchange rates with respect to the USD. India, which was fourth until recently, has now been estimated to be in the sixth position due to a moderately sharp depreciation of the INR.  This could reverse once INR strengthens against the USD.

Limitations of the ICP Method

There are limitations of the ICP method of estimating the PPP basis GDP, which suggest a nuanced application of the resulting PPP GDP numbers. These include:

• Infrequent Data and Lag Time: The ICP is a massive undertaking conducted only every few years, necessitating estimations (extrapolation) in between, which can introduce inaccuracies and fail to match actual economic changes.
• Measurement and Quality Issues: Comparing the exact same goods (identical baskets) across different countries with unique consumption habits is difficult.
• Informal Sector Underestimation: Economies with large non-observed or informal sectors often have their GDP underestimated
• Standard Errors and Uncertainty: PPPs are statistical estimates with high, often unquantified, standard errors, meaning minor differences in ranking between countries should not be over-interpreted.
• Regional Linking Challenges: Linking different regional comparisons (e.g., OECD vs. CIS) can introduce methodological shifts, affecting comparability across different ICP rounds (e.g., 2017 to 2021)
• Methodological Changes: Changes in methodologies between rounds (e.g., the 2005 vs. 2011 comparisons) can make long-term comparisons unreliable¹.

 

Distribution of Global GDP on PPP Basis by Countries   

Figure 1: The Global GDP and Its Distribution on the PPP Basis²

Figure 1 provides the distribution of global GDP on a PPP basis, on the basis of which the following observations may be made.

(1) Three countries combined represent nearly half of the global GDP, implying that they account for half of the global economic activity:

• China ($43.5 Trillion): Firmly established as the world's largest economy in PPP terms, China holds a 19.9% share of the global total. Its share is significantly larger than that of the United States, reflecting its higher domestic purchasing power.
• United States ($31.8 Trillion): While it remains the leader in Nominal GDP, on the PPP basis, it holds the second-largest share at 14.5%.
• India ($19.1 Trillion): India is the third-largest economy, with a share of 8.7% of the global PPP GDP. In terms of the contribution to the increase in the global PPP GDP, India’s share of about 18 per cent broadly corresponds to India’s share of the global population. India aims to increase its share of the increase in global GDP in PPP terms by sustaining its higher growth compared to the other major economies.

(2) It is noteworthy that Russia’s GDP on a PPP basis at USD 7.3 trillion significantly exceeds that of European countries (such as Germany at USD 6.3 trillion, France at USD 4.7 trillion, and Italy at USD 3.8 trillion), and of the United Kingdom at USD 4.6 trillion.

Moreover, as shown in Figure 2, Russia’s value of natural resource wealth is the highest in the world at USD 75 trillion, while Europe and the United Kingdom are much less endowed with natural resources, with none of them in the top ten countries in Figure 2. This considerably weakens the leverage of Europe over Russia. Antagonistic policies towards Russia by Europe thus greatly omplicates pursual of meeting Europe’s economic and energy challenges.

Figure 2: Estimated Natural Resource Wealth of Top Ten Countries Globally³

3. Among other countries, a significant share of global PPP GDP is exhibited by Japan (3.1 per cent), Indonesia (2.5 per cent), and Brazil (2.4 per cent).
4. In terms of regions, Asia contributed 49 per cent, Europe 21 per cent, North America 18 per cent, Africa 6 per cent, South America 5 per cent, and Oceania 1 per cent. As Asia as a group is likely to grow at a higher rate than Europe and North America, its share may be expected to increase. With positive technological and governance progress in relatively resource-rich Africa, it is probable that its share in Global PPP GDP may increase in the future.

 

Trend in India’s PPP GDP Share

Table 1: A Comparison of India's PPP GDP as a percentage of Selected Countries (Values in USD Billion)

Country	2015 GDP (PPP)	India as % of Country (2015)	2025 GDP (PPP)	India as % of Country (2025)
India	$7,204	100%	$18,902	100%
USA	$18,295	39.4%	$32,383	61.4%
China	$18,577	38.7%	$44,295	45.8%
Germany	$3,965	181.6%	$6,408	305.8%
Japan	$5,199	138.5%	$7,262	269.6%
United Kingdom	$2,767	260.3%	$4,720	415.1%
Indonesia	$2,625	274.4%	$5,449	374.4%
Brazil	$2,989	241.0%	$5,229	378.9%
South Korea	$2,030	354.8%	$3,542	559.1%
Mexico	$2,309	311.9%	$3,580	551.8%
South Africa	$759	949.1%	$1,070	1834.7%

 

Table 1 provides data on the change in India’s PPP GDP share with respect to selected countries in 2015 and 2025. This provides a sufficiently long period to assess whether India is narrowing the gap (or expanding the share) with respect to sample countries.⁴

 

Based on data in Table 1, the following observations can be made:

• Narrowing the Gap with China and the USA: The most significant trend is India's rapid "catch-up" with the world's two largest economies. In 2015, India’s economy was less than half the size of the USA’s (39.4%); by 2025, it had reached nearly 62 per cent. While China remains a much larger peer, India has maintained its relative position, growing from 39 per cent to nearly 46 per cent of China's PPP GDP.
• Strong Gain with Germany and Japan: In 2015, India’s PPP GDP was roughly 1.8 times the size of Germany and 1.4 times the size of Japan. By 2025, India’s PPP GDP was nearly 3 times that of Germany and 2.6 times that of Japan. This trend reflects India’s high-growth trajectory and the stagnant or slow growth of traditional advanced economies.
• Impressive Performance with respect to Middle-Income Countries: India’s lead over other important middle-income countries such as Brazil, Indonesia, and Mexico has widened substantially. For instance, while India was 3.1 times the size of Mexico in 2015, by 2025, it was 5.5 times larger. The corresponding figures for Brazil are from 2.4 to 3.8, and for Indonesia from 2.7 to 3.7.

India’s goal of Viksit Bharat envisages sustaining the above performance trends with respect to relative PPP GDP, and to ensure that India’s scale increases significantly so that it becomes a major contributor to the global growth of GDP. India should make a more strategic use of the scale of its economy.

 

References

1.  https://www.worldbank.org/en/programs/icp/faq (Accessed on 1 May 2026)
2. https://www.visualcapitalist.com/the-global-economy-by-ppp-2026/ (Accessed on 30 April 2026)
3. https://www.linkedin.com/posts/harshadshah1953_top-10-resource-rich-countries-by-natural-activity-7406358721586446337-5dgY (Accessed on 1 May, 2026)
4. World Bank, World Development Indicators Database and IMF, World Economic Outlook, 2026. (Accessed on 30 April, 2026)