Indian currency most undervalued: Big Mac Index

Last Updated: Tuesday, January 17, 2012 - 21:11

New Delhi: If a Big Mac burger from local McDonald`s outlet is taken as a benchmark, India is the place to get it cheapest in the US dollar terms, but this analogy also makes rupee the world`s most undervalued currency.

As per the latest Big Mac index, compiled by the Economist magazine to analyse purchasing-power parity of various global currencies, the Swiss franc is the most overvalued in the world, while rupee is most undervalued.

India was included in the index in July last year and has continued to rank the lowest on the list, which is compiled on the basis of the US dollar equivalent of the price of one Big Mac burger, priced USD 4.20 apiece in the US.

As per the latest index, prepared on basis of market exchange rate as on January 11, its price is the highest at USD 6.81 in Switzerland, while the same is sold in India for just USD 1.62 -- the lowest in the world.

Rupee had depreciated sharply by about 19 percent last year and even fell to a record low of 54.30 against the US dollar on December 15, 2011. The current exchange rates peg the Indian currency at about Rs 51 against the US dollar.

The price of Big Mac burgers of McDonald`s is considered for the index for the reason of the presence of fast-food chain across most of the countries and the magazine calls this theory `burgernomics`.

This index was first compiled in September 1986 and new currencies, including Indian rupee, were added to the list last year to mark its silver jubilee year.

"According to burgernomics, the Swiss franc is a meaty 62 percent overvalued. The exchange rate that would equalise the price of a Swiss Big Mac with an American one is Swiss franc 1.55 to the dollar," as per the latest index.

"The cheapest burger is found in India, costing just USD 1.62. Though because Big Macs are not sold in India, we take the price of a Maharaja Mac, which is made with chicken instead of beef," it added.

Maharaja Mac is the closest Indian equivalent of Big Mac burgers at the Indian outlets of McDonald`s.

"Nonetheless, our index suggests the rupee is 60 percent undercooked. The euro, which recently fell to a 16-month low against the dollar, is now trading at less than euro 1.30 to the greenback," the Economist noted.

Switzerland is followed by Norway, Sweden, Brazil, Australia, Argentina, Canada, Uruguay and Euro area among the countries with the top most overvalued currencies against the US dollar.

Among the places with most undervalued currencies, India is followed by Ukraine, Hong Kong, Malaysia, China, South Africa, Thailand, Indonesia, Taiwan, Sri Lanka and Russia.

PTI



First Published: Tuesday, January 17, 2012 - 21:11

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