The claim that the Indian economy has overtaken the U.K. economy in terms of absolute size, as made by a contributor to Forbes magazine and carried by sections of the Indian media, is not backed by data, an analysis by The Hindu of GDP data from the International Monetary Fund (IMF) and the Government of India, and currency data from the central banks of the two countries shows.
The Forbes report, authored by a former McKinsey consultant and current student at Tsinghua University, says that the U.K.’s GDP in 2016 was £1.87 trillion which, given the 20 per cent decline in the value of the pound over the course of 2016, translated to $2.29 trillion. The report cites India’s 2016 GDP as being Rs. 153 trillion, which converts to $2.30 trillion at an exchange rate of Rs. 66.6 a dollar.
While the GDP figure cited for the U.K. is corroborated by data from the IMF and the currency rate of 0.81 pounds to the dollar used in the calculations is backed by data from the Bank of England, the data for India does not match up.
“There were basically two considerations, the nominal value of GDP of both countries and the currency exchange rates,” D.K. Srivastava, chief policy advisor, EY India, told The Hindu. “Our estimates show that the GDP for 2016 would be at Rs. 149 trillion rupees. We are looking at the provisional actuals of last year and applying our estimate of the growth rate.”
The IMF, in its October 2016 edition of its World Economic Outlook, estimates that India’s GDP for the year would be Rs. 122.15 trillion, far lower than the Rs. 153 trillion assumed in the Forbes report. Even looking at Indian sources, the combined GDP over Q1 and Q2 of this financial year, as reported by the Ministry of Statistics and Programme Implementation, was Rs. 71.5 trillion. If, for ease of calculation, this is doubled to arrive at the full-year figure, then that works out to only Rs. 143 trillion.
Of course, simply doubling the GDP in Q1 and Q2 is inaccurate, but it becomes even more so this year, due to the expected dampening effect on GDP growth as a result of the demonetisation of high-value currency notes announced on November 8, which is expected to be felt in the second half of this financial year.
The final dollar value of the GDPs of the U.K. and India is based on the currency exchange rate used by the Forbes contributor in his calculation. Even a minor inaccuracy here can change the final outcome by a significant amount.
The Forbes report assumes an exchange rate of 0.81 pounds to the dollar. According to data from the Bank of England, the exchange rate was an average of 0.80 on December 16, the date the Forbes report was published. Using the author’s own U.K. 2016 GDP figure of £1.87 trillion, this works out to $2.33 trillion, larger than what he estimated the Indian economy to be.
The Reserve Bank of India notified Rs. 67.78 as the exchange rate to the dollar on December 16, 2016. Even assuming that the Forbes report’s 2016 GDP figure for India is correct, converting it at the RBI exchange rate yields a GDP size of $2.26 trillion, again smaller than all estimates of the U.K. economy.
“Our estimate is that India is still smaller than the U.K., but it might overtake it at market exchange rates by the next financial year,” Mr. Srivastava added. “However, what is material is that in purchasing power parity terms India is much higher than all economies except the U.S. and China.”