Purchasing power parity is defined as the number of units of a country’s currency required to buy the same amount of goods and services in the domestic market as one dollar would buy in the US.
The technique of purchasing power parity allows us to estimate what exchange between two currencies is needed to express the accurate purchasing power of the tow currencies in the respective countries.
The PPP is an alternative method to make international comparison of GDP, Per capita income etc. Official or widely followed method is the market exchange rate oriented (dollar – rupee exchange rate) method. But the PPP is supposed to be the most realistic method. India’s GDP is higher and is the third biggest economy when using the PPP method to estimate GDP. On the other hand, the country is ranked seventh when the conventional market exchange rate method is used.
