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Big Mac Index grills India

August 12, 2011

Most global economies including India and the US, have condemned China in the past few years for undervaluing its currency the RMB or yuan, keeping exports cheap and imports more expensive. A more recent and fun survey, conducted by the Economist however measures India’s rupee to be more undervalued than China’s yuan.

A quarter century after it was first unveiled, the Big Mac Index grills India into the index just this year. The Big Mac Index is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of a basket of goods and services around the world. Although the index is now configured to measure the beef Big Mac available internationally with India’s localised chicken version of the Maharaja Mac, India comes out looking pretty bad. Meat accounts for less than 10 percent of a burger’s total cost, so this is unlikely to distort results hugely.

The country whose Central Bank released a report last April stating that a 1 percent fall in rupee Vs yuan may cut India imports from China by 0.43 percent, is evaluated as being 53 percent undervalued against the dollar. China’s yuan is 44 percent undervalued against the dollar in the same index. Further, while China’s RMB doesn’t come out looking as poor against the dollar when adjusted for GDP per person – 3 percent overvalued against the dollar due to lower labour costs, India where a Maharja Mac costs Rs. 84 or US$1.89 remains 8 percent undervalued against the dollar.

A variation on the comparison – which measures the average time taken by a worker to earn enough money to buy a Big Mac – placed Mumbai, India’s financial centre, as ninth from the bottom. It would take a worker there close to an hour to earn enough money for a Chicken Maharaja Mac.

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