Purchasing Power Parity Explained in Detail

The next time your US-based relative claims to earn Rs 80 Lac annually, tell him you just need Rs 23 Lac to live the same lifestyle he does in India. Purchasing Power Parity (PPP) operates as follows. According to Wikipedia, “Buying power parity is the assessment of prices in various nations that utilises the prices of specific items to compare the absolute purchasing power of the countries’ currencies, and, to some degree, the living standards of their people.”

PPP, or purchasing power parity, is an intriguing economic term that, put simply, measures the rate at which one country’s currency would need to be changed into another country’s currency in order to purchase the same amount of goods and services in each nation.

When accepting a job offer or moving overseas, the majority of people tend to neglect the crucial element of purchasing power parity. This may be a helpful statistic when you may contrast employment offers where you have the option of accepting an offer of Rs 30 Lac to remain in India or Rs 80 Lac to relocate to the US.

Buying power parity trade explanation

According to purchasing power, income of Rs 23 lacs in India will be equivalent to income of Rs 65 lacs in the UK and Rs 37 lacs in the UAE.

As developed nations also provide public infrastructure, technology, services, opportunities, and social security as a whole, it is obvious that this straightforward PPP conversion is insufficient. You can still take that into account, along with other things.

Here are a few other crucial factors to take into account while contrasting the purchasing practises in India with the US or other countries:

For the price of a round of drinks in the US, you can hire a maid, cook, driver, and many more services in India for a whole month.
Foreign nations may have a wonderful standard of living, but they can have other problems. Take American gun violence, racism, etc. as examples.

To become a citizen abroad is not simple. Old age might claim your life in the US.When comparing purchasing power, acquiring assets such as homes, expensive vehicles, iPhones, Macbooks, designer clothing from Zara, etc. may be a whole different comparison.

If you’re aiming to save money before returning home while working overseas, you may bring a sizable lump sum of money. However, the purchasing power parity principle will once more apply if you intend to remain overseas. You might live a similar lifestyle in India if you saved the same percentage of your income there.

Other nations may have tax slab rates that are comparable to or greater. You will be paying taxes to a foreign country while residing abroad. What say you? If you had a choice, what would you pick?