Cheers! India is now a trillion dollar economy

HONG KONG: India’s GDP crossed the $1 trillion mark at current market prices on Wednesday, becoming the world’s 12th economy to surge past that defining milestone. The historic moment was orchestrated when the rupee rose over the 41 level in relation to the US dollar, touching its highest value in nine years.

The RBI had reported on Monday that India’s GDP at current market prices was Rs41,00,636 crore, or just a shade over Rs41 trillion. On that count, when the rupee closed at 40.94 on Wednesday, India’s GDP, at current market prices, edged just a notch above the $1 trillion mark for the first time.

Nilesh Jasani, a strategist with Credit Suisse India, draws attention to this statistical oddity in a report written half in jest. He also points out that India’s stock market capitalisation too could, by stretching things just a bit, arguably be said to have crossed the $1 trillion mark, also on Wednesday.

Jasani said the crossing of the two landmarks does not change anything fundamentally. In fact, even the premise that underlies the calculations is a little suspect. “It is wrong to take quarter-end GDP and some interim exchange rates for the calculation of GDP in a foreign currency,” Jasani said.  “And any apparent GDP growth in foreign currency denomination due to exchange rate movements is not real growth.”

Nevertheless, Jasani said that the developments would provoke much self-congratulation.  “The likely hoopla will add to investor sentiment,” he said.

In any case, the $1 trillion GDP milestone will be crossed by the end of the first quarter of 2007-08 (FY08).

“At the current exchange rate, FY07’s (2006-07) advance estimated GDP, at current prices, is $1 trillion,” Jasani said.

“With a GDP that’s growing at over 14 per cent a year, the official four-quarter rolling number will cross the mark at the end of the first quarter of FY 2008.”  

The rupee’s sharp appreciation in recent weeks has brought forward the timeline for what is, after all, an inevitable outcome by about six months, Jasani said.

Eight of the top 10 economies that have crossed the $1 trillion milestone saw their stock markets rise in the one-period immediately after.

Jasani reckons it could have been a mere coincidence, “even if some people want to attribute it to the ‘halo effect’ on inflows”.

As with the GDP, so too with India’s stock market: by tweaking the numbers and definitions a bit, one can squeeze out another ‘milestone’ $1 trillion achievement, Jasani said. For instance, the total market capitalisation of the Bombay Stock Exchange as on Wednesday was $944 billion. By fancifully expanding the universe of “Indian stocks” the market cap can be bumped up to $992 billion.

That can be accomplished by including three groups in the universe. First, Indian entities listed on London’s Alternative Investment Market (AIM). Second, global companies acquired by listed Indian companies in recent months.

And finally, few other companies that have historically been tagged as Indian either because of their operations, management structure and/or because they are covered by Indian analysts.

Jasani said: “Using rounding errors and/or ADR (American depository receipts) prices, an aggressive historian with a penchant for forcing interesting ‘facts’ can claim that Indian companies’ market capitalisation also crossed the $1 trillion marked on Wednesday.”

Jasani, however, said irrespective of precisely when these milestones are crossed, India has become too big to ignore.

“With the likely focus on these landmarks, there may just be some more capital flows towards India - even if that’s not what the policymakers desire in the near term.”