PPP (Purchasing Power Parity) को आसान भाषा में समझिये - YouTube

Press the bell icon while subscribing

So that you will get a notification of the latest finance video

Namaskar, my name is Mukul and you are welcome to the Asset Yogi channel

Friends, in this video, we are going to discuss a very important topic

That is Purchase Power Parity

You may have read it in the newspaper, it is often published in the news headlines

That the highest package of XYZ institute is 1 crore

We all know that we don't get 1 crore Rs in India

The salaries in India doesn't go as high as 1 crore

These salaries are for foreign countries say USA, Europe or the gulf countries

We often assume that someone is getting the salary of 1 crore in the USA

Then he is getting 1,43,000$ approx

I have assumed one dollar for 70 Rs if we take a normal exchange rate

So the question that arises here is that

Can you compare this 1 crore as it is in India?

No, absolutely not.

Because the cost of living in both countries is different.

We all know that.

But the next question is that let's say the same institute in

India says that the highest salary is 30 lakhs

So now if we want to compare both these salaries

Then which salary would be better out of the two

Is there any scientific way to compare these two?

Definitely yes.

And purchasing power parity is one of them.

Which we will understand in this video and

We will see out of the two, which salary is better

How to do the comparison?

We can compare the GDP of the economy through PPP.

If we take the nominal GDP which is published, then the USA is the number 1 economy.

And India comes at 6th or 7th number.

But according to Purchasing Power Parity, what is the standing of India?

We are going to see that in this video.

So stay tuned with the video.

Music

Purchasing Power Parity

Which is also called PPP in short.

For understanding this, let's take an example

Assume a cost of a burger in the USA is 4$

We want to see its ideal pricing in India.

What is the meaning of ideal price?

If we take an exchange rate of 1$

is worth 70 Rs

That means the price of the burger should be 280 Rs

In an ideal economy

This means if this is tradable good

And we send it to India from the USA

And assume there is a negligible transportation cost.

So this should be sold for 280 Rs in India

Or we are manufacturing this in India, then whatever the labor cost is

In the USA, it is the same in India. The real estate prices are also the same.

Everything is tradable. So in an ideal situation, the price should be 280 Rs

So we will say that this is a hypothetical price. It is the price of the ideal economy.

But if we talk about the actual price

Then let's say on today's date its price is 60 Rs

See the cost of living in every country is different.

The cost of living in the USA is different and it is different in India.

Real estate is that thing that is not tradable

We cannot transport it from India to the USA and from the USA to India

Similarly, the labor cannot be transferred suddenly to the USA

and it can't be transferred from the USA to India. Many factors can't be traded easily.

So we can imagine the ideal economy but there isn't one.

So if we take the actual price in India

Of the same burger is 60 Rs

And in the USA, it is 4 Rs

So the rate that comes with the price comparison of the two

We call it Purchasing Power Parity.

So if you want the rate of PPP for India and the USA

So what will you do?

Price1/Price2. This is the formula.

This means the price in India

You will divide this 60 Rs by 4 $, then your PPP rate will come.

That means 15 Rs per dollar.

This is your PPP rate.

You have seen that the exchange rate is 70 Rs per dollar.

What was this? Which rate was this?

This was your market exchange rate.

So see, the market rate depends on various factors.

Here speculation is done in the currency, hedging is also done.

Every type of trading is done here. So the market rate is a different rate.

But when you compare the actual price of both the countries

Then we call it Purchasing Power Parity.

So, if we talk about the USA and India

In this example, the rate of purchasing power parity

Is 15 Rs per dollar

So see, here we only talked about the burger.

But in reality, these are baskets of goods.

Whatever consumers consume the goods normally

All these are taken.

Goods and services both.

PPP comparisons are published by the World Bank

World Bank shows you the PPP comparison of every country with the dollar

And in this, as I've told you, baskets of goods are considered.

Baskets of goods and services. I will also write services here.

So, many things are considered here

So the last report of 2017 that I checked

The PPP rate of the USA India

Was 1$=17.73 Rs.

I will show you the report quickly.

PPP does not change very quickly.

The exchange rate fluctuates daily

But the PPP does not change that easily

Weekly, monthly, or even annually it does not change that easily

So I think we have understood the concept of Purchasing Power Parity.

We will see the report quickly

So see here, on the website of World Bank

You will get the conversion factors of Purchasing Power Parity.

I will share the link with you in the description.

We will come down

See the comparisons of 1990 and 2017 are given.

All countries and economies.

First, we will talk about India, these are given according to the US Dollar

All these rates. So we will see India. What is the rate of India in 2017?

The rate is 17.73 Rs per dollar.

So if we say the rate of Purchasing Power Parity

is 1$= 17.73 Rs. We will do our calculations with this only.

So if you want to compare any currency

Then you can divide them with each other

For example, if you want to compare India and China. So what will you do?

Let's say India's rate is 17.73, then you will divide this by the rate of China

What is China's rate? 3.55

What will we do? We will divide 17.73 by 3.55

So you will get the rate of Rupees per Yuan

So in this way, you can check the rate of Purchasing Power Parity of any country

You can compare any two countries with each other.

That what is the cost of living between the two countries?

See many times the GDP is also calculated in this way

The first is nominal GDP, where we talk about actual terms

And other is calculated according to Purchasing Power Parity

So we will see the list for both of them.

So see, list of countries by GDP( nominal)

If we talk about the actual GDP of 2018

Let's say the International Monetary Fund has made this list.

According to that, the United States of America is the number 1 economy

China is on the 2nd, third is Japan, and as you can see India is on the 7th number.

This is the report of 2018.

In 2017, it is approximately the same but India was on the 6th number

Now if we talk about Purchasing Power Parity

That means if we calculate the cost of living

How are the goods being sold there?

So see, India is on the 3rd number.

And on the first, it is China

China has become the largest economy in the world.

According to purchasing power parity

This means according to their cost of living

How much production is going on in China

According to that, China is the number one economy and India is number 3rd

I hope the concept of purchasing power parity is clear to you

We will do our calculation quickly and let's get back to our example.

As we have seen, our purchasing power parity rate is 17.73

So now we will take the exchange rate of 17.73 instead of 70.

If we want to compare according to the purchasing power parity

If we multiple 1,43,000 with 17.73

Then your approximate figure is 25 lacs

And if we compare 25 lacs salary with 30 lacs salary

Then your 30 lacs salary is better

In this way, by using purchasing power parity

You can compare two incomes between two countries

Or you can compare GDP also

I hope you liked the video,

then like and share the video with your friends and family members.

If you have any suggestions regarding the video and the channel

Then you can comment it below

Or you can suggest the topics also for the future videos

If you haven't subscribed to the channel yet

Then subscribe and press the bell icon

So that you'll get the notification of my latest finance video

So let's meet in the next informative video

Till then keep learning, keep earning

And be happy as always