We look at the index from the point of view of liquidity. Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of at least 20 academic studies.' Yet, the widespread adoption of the Big Mac Index indicates that it is perhaps ok to subject it to rigorous analysis. In fact, The Economist explains, “Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. There are several shortcomings with the Big Mac Index, with the most glaring one being that it is rather simplistic.
According to the same index, back in mid-2011 (the index is calculated twice a year), the rupee was only 10% undervalued against the dollar. In other words, the number of rupees required to purchase one dollar should be 30% lower than what it is today, or about 42 rupees to the dollar.
For example, going by the latest edition of the Big Mac Index published in January, the rupee is undervalued by about 30% against the dollar.
