ExplainSpeaking: Making sense of the size of India’s economy

CHART 1 shows the top 10 economies by size and their GDP level in trillions of dollars. There is a vast gap between the US and China, which occupy the first two slots, and the rest of the field.

CHART 1: Top 10 economies by size (GDP stated in $ trillions)

For instance, at $26.9 trillion, the US’s GDP is $2 trillion more than the combined GDP of all the countries from Japan (rank 3) to Brazil (rank 10). It is noteworthy that $2 trillion is roughly the GDP of the last three countries in this elite list.

Similarly, China’s GDP is $3 trillion more than the combined GDP of all the countries from India (rank 5) to Brazil (rank 10).

However, the size of the GDP does not capture the average income levels in the different countries. While it is generally held that higher overall GDP implies more prosperity (read average incomes), there are wide variations.

To better understand the level of prosperity in any country, one has to look at average incomes or per capita GDP. That’s the total GDP divided by the population of the concerned country.

When one calculates the per capita incomes, the picture changes considerably.

CHART 2 shows how.

CHART 2: Per capita incomes of the top 10 economies. (per capita GDP stated in $ thousands)

Canada, which is the ninth-ranked country in terms of total GDP, turns out to be the second-best when it comes to average income levels.

Similarly, China plummets to third-last position in per capita terms. In fact, most countries, barring India and Brazil, beat China on this count.

For India, too, looking at this chart is instructive as it tells how far it has to go if it wants to alleviate widespread poverty and unemployment and bring about overall prosperity.

Here’s a good way to understand how far India is.

Forget the wait of the next 25 years and imagine that overnight India’s GDP rises to the level of the United States.

Even as the world’s biggest economy, India’s per capita GDP would be $18,680. Even such a remarkable change will only push India from rank 10 to rank 8 in this list.

Until next time,

Udit