Austin wrote:If you cannot take that Rupee or Yuan and buy what ever you want across the globe but the same USD/Euro/Yen guy can do it then it really does not matter it is just a question of internal stastics for the nation.
Unless we have a full free floating currency and capital account convertibility of Rupee where any citizen can exchange its curreny with what ever currency or goods or service he wants across the globe then it would be a true benchmark
You are missing the point, and oversimplifying things. The same $ buys you different things around the world (e.g. simplified as the Big Mac Index), for reasons far more complex than mere convertibility between currencies. Capital account convertibility exists in the west because the most fundamental trait of the western economies is that they are capital surplus, and they NEED capital account convertibility to chase returns on that capital easily.
The cost of goods, labor and energy all differ across countries. Some have vastly greater population and therefore low cost of labor. Others have huge supplies of energy and therefore cheap cost of energy. India is capital deficient, energy deficient and labor surplus. Your arguing for a prescription suited to a capital surplus, energy surplus and labor deficient country (any western nation) to be applied to a diametrically opposite one.
You describe lack of convertibility as some kind of big central issue affecting PPP. It's not. Not even close. Countries are differently endowed, in capital, labor and energy. They construct an economy out of what they have access to. They liberally permit what benefit them, and restrict what hurts them. They play with the combination of labor, capital and energy they have.
Your example cases of Europe or US may have full convertibility, but have no freedom of labor. If anything, they're politically closing doors on whatever they do permit now. Let's pretend Indian Rupee becomes fully convertible. Since we also want to eliminate all other distortions, we also immediately permit free movement of labor into the developed west. And oh, prices of all goods and services are equalized. Petrol costs fixed at the same level everywhere.
If that going to happen ? Never. The west will portray what benefits it - capital account convertibility because they are capital surplus - while being VERY careful with what they don't have enough of - cheap labor. They'll leverage it externally, but will never gut their own workforce in the name of 'freedom of labor', which is the labor equivalent of capital account convertibility.
So please, don't simplistically claim things about capital account convertibility. It's a far more nuanced issue than what such an argument portrays. Neither PPP nor absolute GDP formulae are perfect. But they are complementary.