Thursday, February 7, 2013

Source: The Economist

By how much do you think the Indian currency is undervalued vis-a-vis the US dollar? 10% may be. Or about 20% maximum. What if we tell you that as per a popular metric, the undervaluation is as high as around 60%? Hard to believe, isn't it? But that's what the Big Mac index seems to be indicating. In fact, as per the index, India has the most undervalued currency amongst the major economies of the world. The index, that forms its exchange rate based on the price of a standard McDonald burger in each country, is of the view that an exchange rate of Rs 20.4 to the dollar will buy you the same burger in US that you buy in India. Of course, this exchange rate cannot be fully relied upon but what is also true is that on purchasing power parity basis, India does punch above its weight in the economic pecking order.

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