What Is Purchasing Power Parity, And Why It Matters?
By: Nikhil Pandey
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13 Dec 2025
Purchasing power parity compares currencies by what identical goods cost across different countries worldwide today
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According to Forbes, PPP explains why prices differ globally and shows how much people can actually afford goods
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Unlike exchange rates, PPP uses a basket of goods to compare living standards across nations
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IMF data shows India's GDP under PPP exceeds seventeen trillion dollars, ranking third globally worldwide
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PPP matters because it highlights India's economic strength despite lower rankings by nominal GDP measures
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Nominal GDP reflects market prices, while GDP-PPP reveals real purchasing power and living costs differences
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India's lower costs make services cheaper, from haircuts to healthcare, compared with richer economies globally
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Policymakers and investors use PPP for trade analysis, currency valuation, and economic planning worldwide strategies
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PPP also helps compare real incomes and adjust wages for multinational workers across global markets
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However, taxes, transport costs, regulations, and services limit PPP's accuracy when used alone globally sometimes
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