Revising PPP and the Idli Sambar Index

India, China, Singapore and some other countries are planning to revise their purchasing power parity (PPP) to reflect the current situation. Interestingly the last time the PPP was evaluated was 15 years ago.

The PPP of a country indicates the overall pricing of goods and services in respect to that of the US. The PPP as a concept means that if the exchange rate between one currency and another is in equilibrium, then their domestic purchasing powers at that rate of exchange are equivalent. Although this does not happen in practice, it does give an indication about comparative purchasing power of a currency in global perspective. “PPP is directly linked with the actual purchase power of a dollar in different countries,” Dr Bhattacharya explained.

As per the World Development Report 2003, India’s PPP in 2001 has been estimated at $2,450, while its per capita income is at $460. China’s PPP was significantly higher than India at $4,260. Its per capita income is $890. [Financial Express]

Unfortunately, McDonald’s in India does not sell Big Macs, so The Economist cant include India in its Big Mac Index. Given militant vegetarianism, maybe its time to set up the Idli Sambar Index. I invite bloggers to let me know the price of a plate of Idli Sambar (2 idlis, sambar, and chutney: the restaurant must be Udipi class) in your respective cities and we’ll compute the Idli Sambar Index, and assess the valuation of foreign currencies. Trained and untrained economists are welcome to comment on this idea.

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