Note:- This article was written before the demonetization took place in November 2016 in India
The economy of India is something that many people in the world have no clue about. The development of India after independence from the British is undervalued by the international media. They are more busy showing poverty, rapes and all “the problems of India” which are highly exaggerated by them. They are not really showing to the world how India is progressing, how India has already become a global player in terms of its overall size of the economy, the rate at which it is growing and also its influence on the world’s markets.
GDP (Gross Domestic Product)
Let’s first discuss the basics. We can basically have two main ways of measuring a country economy by their GDP (Gross Domestic Product) – one is the Purchasing Power Parity (PPP) and the other is nominal. In these two ways of looking at the economy, there are actually even more ways to calculate. In both PPP terms and nominal terms, we can further classify it by the overall size and also by per capita. Per capita is something which takes the population of the country in consideration. So most of the countries which are big in population, they will always have small per capita GDP whether it is PPP or nominal. So, in per ca pita terms, even the giant economies and superpowers like USA and China are ranking lower than tiny economies like Qatar, Luxembourg, Norway, Switzerland etc.
GDP in PPP (Purchasing Power Parity) terms or nominal terms
Let’s find out the main difference between GDP which is PPP or nominal. PPP is something which actually compares the economy of a country in a more fair way. If America has 1000 apples and so does India, it doesn’t make Americans richer in their GDP just because their apples are more expensive than Indian apples because after all, they are all just apples. So if you don’t take the US dollar into account (because now everything is converted into US dollar), if you don’t take into account these kinds of factors than the better way which is agreed by the economists all around the world is to measure the country economy is in PPP. And when we take into account the PPP of the whole economy size of the world countries after the USA and China it is already India which already makes India a super giant economy.
On the other hand, India does not come in top 10 or even top 100 when it comes to measuring the economy in PPP terms but also per capita terms (when divided by the population). The USA and China and even all the countries which influence the world market and are superpowers are not coming in the top 5 either when it comes to PPP in per capita because their population is also relatively higher. In this way, only countries like Qatar, Brunei, Singapore and Luxembourg or even Switzerland go on top. But that doesn’t make these little countries superpowers at all. With due regards to countries like Brunei, Qatar, Norway etc, the fact of the matter is that USA or China are having many many Bruneis, Norways inside them. There are many rich districts with a respectable population even in India where the per ca pita terms can humble the best per ca pita statistics countries and this is where the ”wealth-distribution among the people of a given country” becomes important which I will cover later in this post.
So having a small country with just a handful of rich people or good per capita statistics in a small population does not make you a global player. What makes you a global player is the overall size of your economy and your share in the global GDP. If the economy of Brunei crashes no major economy will have any impact. But on the other hand, if even a country like Brazil has problems even the top players like the USA can feel affected. But Brazil is not even close to what India is in terms of PPP, so India is now already a top 3 global player. Of course, around the world the economists and the students who are studying the economy are aware that India is the future superpower of the world. But on the other hand, the common man in the West has no clue about it and the Westerners still think that India is some kind of a backward country from the third world which is already a very unfair way to refer the current India and also to the ancient India who in the entire history of mankind had been the only country that had maintained its numero uno position for thousands of years in terms of economy and knowledge.
Coming back to nominal GDP – it is always calculated in a way in which apples are not compared with apples. Everything is converted into US dollars. So if US dollar is taken into account GDP rate of India goes to number 7 which is already respectable and with such an economic growth of India, this country is supposed to beat no 5 and 4 in a few years already even in the nominal GDP terms as well.
The economy of a country is not only about GDP
On the other hand, one should remember that GDP is not the only way to see nation’s wealth. Many more things should be considered like national debt, Gini coefficient (which shows the income distribution among the citizens), FOREX (the foreign exchange market), financial institution health in both public and private sectors, human development index, fiscal deficit, current account deficit, gold reserves of the government, gold reserves in the households and others institutions like temples etc, black money parallel economy, invisible black money GDP, share markets health, proportion of foreign investment in the domestic markets and also in government and private entities and many other factors. And the good news is that India does have very strong fundamentals in its economy.
But here comes a dilemma- In a country, where there is a big black economy functioning, it is impossible for the world bank and other financial institutions to come up with the accurate figures of poverty line, Gini coefficient, gold reserves in the households etc. and that is the main reason why India is shown poorer than it really is. And we must remember, the giant GDP of India is only its white GDP, if you combine that with its black GDP, India may already be a few times bigger right away.
World bank may never be able to calculate the real percentage of Indian population that lives below the poverty line because the majority of Indians just deal in black money when they buy vegetables, get a hair cut, buy a burger or take a taxi. These trades never add to the GDP of the country as well. So, basically one could have a fancy meal, wear branded clothes, ride in private taxis and pay for everything in cash and all this will never be added to the GDP of India and more importantly, the world bank will still consider you below poverty line if you do not reveal your true income to the government regardless of how much cash you spend in your life. It is a fact that 90% of Indians who are in the middle and higher income category never reveal their true income to the government. The Indians who are in the low income group do not even have a tax number and they deal with everything in cash. So, the world bank considers them below poverty line. What a joke that is! But it does not mean that each and every person in India who comes below poverty line is not poor. One must also remember, that India has lots of illegal immigrants living from the neighbor countries who now have taken permanent shelter and even claimed an Indian citizenship and they add to the poverty list of India as well. But one thing is sure that the world bank report of poor people in India is highly exaggerated by at least 20 times if not more. Do not believe me? Go to a slum in India where mostly everybody has a below poverty line card and see their weddings. You may be surprised that the below poverty line card holders may be having a 15 thousands dollars weddings. And according to the world bank, it never happened because all transactions were in cash. And one must remember that the cost of living in India is extremely low in comparison to the west. In Europe, you buy water for 3 Euros and in India one could have 10 full meals (Thali) in the same amount. The poor people in the west just survive on bread but in India even poor have complete infrastructure of food, shopping and entertainment of their own kind. India fully supports people with all kinds of budgets providing them complete life solutions unlike the west. No matter how rich, poor or a middle income person you are, India has complete life solutions for you.
And one more thing that I want the west to learn- India is not just about rich and poor people, as your media is showing you. Its middle class is exploding at a rate which is second to none. And this makes India unimaginably powerful with its massive middle class with a big purchasing power.
How can you know the correct Gini coefficient figures which shows the difference between the riches and the poor if the World Bank can’t provide us the right data when there is black money everywhere in India. It is a wide known fact that we all should know that the countries with so much of black money are also running a parallel economy of their own which is invisible to the world bank, so this kind of data should not be considered and be taken with a pinch of salt. But these terms are meaningful only if the national governments of the countries are able to provide authentic statistics to these organizations which are preparing these statistics. Also, these kind of statistics are good when you are dealing with a country with very little or no parallel economy powered by black money. But this is very important because in India’s case these statistics are far from the reality because of the following two reasons.
- The size of huge black money GDP (a giant parallel economy)- The black economy of India which runs in parallel could easily be a few times of its white economy.
- Indian rupee is undervalued- INR is one of the most undervalued currency in the world.
What must be noted is that this development of India after the independence from the British (who left India paralyzed by making the country which once had 30% share of the world GDP to a mere 2%) has happened in just a few decades. On the other hand, real India’s economy could easily be three to four times more if the black money GDP is also taken into account. We must remember that India is a democracy which is unlikely to be as fast as a communist country because the decision and policy making can consume more time because it involves the people at every stage. If India was a communist country, with its huge potential it would even grow at 20% but nevertheless, India is already ahead of China as the fastest growing major economy of the world today.
”Its time for the world to stand up and take notice of how India has sensationally emerged as a top economy in the world and what is even more surprising is that for India, it is still the beginning.”