It is often observed in the present world that most prosperous countries are mainly in the colder regions of the globe. Is this the truth? Or is it just a coincidence? Are there any valid reasons for this money distribution? Let’s find out together.
Is there a relation between temperature and economy?
If you look at this map, you’ll realize that almost all the developed countries lie outside the tropics.
This shows that there is some strength in the statement that colder nations are wealthier.
Economic data show that with every one-degree increase in the temperature, GDP per capita of the country decreases by ₹762. Also, research shows that a country’s economy depends 9% on the climate outside. Even if it does not sound much, it is a huge number! Let us dig into the “Why.”
Possible reasons for this money distribution:
There are many theories put forward to explain this, but none was able to explain it perfectly. Some of them are:
Due to colder climates, agriculture is not possible in those countries, and the residents have to be extra conscious about their food. They have to stock food, reserve fuels and build good shelters to survive winters. Compounding over generations, this led to a society that valued storing resources, and this gave them a head start against hot countries where food was always available.
Due to weather conditions, agriculture was not a flourishing field. Cold countries have to focus on industries to survive; they eventually became industrial countries earlier than hotter ones, again giving them a headstart in this richness.
Some people also believe that this is because, in hot weather, the temper of people stays high, while in colder countries, people remain calm. Hence, government and business leaders can make better decisions in colder countries having a calm mind.
Hence, both data and theories could somewhat explain why cold countries are more prosperous, but will this be true for the future?
Will this trend continue in the future?
The answer to that is, not necessarily. Why? Let’s investigate further.
The answer to that is not necessarily. Why? Let us investigate further.
About 2,000 years ago, a country’s wealth was strongly linked to how much food it could produce. These days, the food production and distribution industry is so developed that every country has enough stock to feed its population. Hence, in modern days, wealth is driven by innovation.
Colder countries just got a head start because of a few factors, but some hot countries like Singapore, Dubai, Bahrain, and Qatar have shown that this head start will not last forever. All these countries are in hotter regions but are excelling in terms of development and richness. Also, in ancient times, Egypt, Rome, Mayans, Persians, all these rich countries were in the hot regions. Hence, every country has immense potential irrespective of its temperature. The trend of cold countries being more prosperous is most likely to be broken in the coming few decades. The land which will innovate will be at the top regardless of the weather outside.
Let us talk about India.
As we have seen, the economy depends 9% on temperature, which means almost ten times that economy depends on other factors like governance, innovation, and youth.
We can learn several things from countries that are in the hotter region yet developed, like Singapore.
Tax laws and Company policies: Ease of doing business. It attracts foreign companies to come to our country. Although India’s rank improved from 142 to 63 in the past five years under the present government, there is still a long way to go. Singapore stands at second position in this.
No tolerance for corruption.
Adequate distribution of resources.
So, it is clear that any country can become a developed one bypassing its geographic and climate conditions. Therefore, rather than thinking about the conditions we cannot control, let us focus on some that we can. Let us upskill ourselves. It is our responsibility to help the government in whatever way we can. They are the ones taking India towards development.
Hence, we cannot just say that India is not a developed country due to the hot weather conditions. There is a lot more to be improved upon.
Majority of wealth in the world is with the minority of people leading to unequal distribution of money and issues such as poverty in society. As a solution to this problem, what if all the wealth in the world is divided equally among the people so that no one is poor and no one is rich. Sounds like an awesome and innovative idea, right??
First of all, the idea of equal wealth among the people will end competition. Competition is the force which thrives innovation, the development of new ideas, new products, services, and thereby development of economy and society. Competition improves the intellect of an individual and a whole society . The hunger for betterment and wealth creation; to be the best in class is what improves systems and makes any society futuristic. For an analogy, let’s assume a class of students. For this particular class, it is decided that whatever marks the students will get, it will be averaged and equal marks will be given to each student. In this scheme, the capable students will not put extra efforts, study and learn as they know this will not come to them in a whole whereas the incapable will become idle & lazy thinking that the others are doing their job for him & that he need not do anything . This will lead to deterioration of one’s intellect, lack of knowledge and skills.
In such a system, ingredients essential for development of an individual and a society such as ambition, hard work, dedication, excellence, ethics, etc. will not exist. An industrialist and a beggar have a huge difference in the mindset. An industrialist will invest the excess money in various industrial sectors and workforce giving employment to people whereas a beggar will simply spend the excess money relentlessly. If all the people have the same purchasing power, this will lead to inflation for a few ranges of products and others will lose their value and importance in the market. This will have a very bad effect on the cash flow in the markets. For maintaining global peace one of the essential factors is monetary power so that people can be led in some direction. The concept of equal wealth among all destroys this power.
The above ideology of equal wealth among all will require an enforcing organisation for its implementation in the long run. This is because it is impossible to make every person walk on the same principle; the monk principle (give free service to the society and to be satisfied with what one has).
Implementing the above ideology will decrease the value of money, deteriorate lifestyle and will lead from social equilibrium to a worldwide chaos. Hence, this ideology of a chaotic state is not applicable to the real world.
Reading Time: 2minutesThe corona pandemic has claimed many lives across the world. It’s other side effects include the widespread rampage on all sectors of economy of the world. It has caused the closure of many small industries, businesses and enterprises and it continues to haunt the future of not only SMEs(Small and Medium Enterprises), MSMEs (Micro Small Medium Enterprises), Microfinance Institutions but also big companies.
In view of this, big Chinese banks, Private Equities and other multilateral instruments are investing heavily in such falling companies. These Chinese corporations work under the beneficial owner; the government of China. China’s recent increase in investment in HDFC bank has exceeded 1% which has poked the bear (RBI) into looking into this matter.
ATTRACTING INVESTORS IS GOOD, SO WHATS THE PROBLEM?
The problem is that by investing heavily they are buying shares of these companies at “THROWAWAY PRICES”. The impact of this, is that they will be majority stakeholders of these companies or aim to attempt buying them eventually (“HOSTILE TAKEOVER”). This will give them power to control these businesses and help them direct profit money to China.
China currently invests around $4 billion in Indian startups.18 out of 30 Indian unicorns (startups having more than $1 billion market capitalization) have Chinese funding.Big investors from China -Alibaba, Tencent , ByteDance have made huge investments in Paytm, Byju’s , OYO, Ola, Big Basket, Swiggy, Zomato. China dominates Indian markets in pharmaceutical APIs(Active Pharmaceutical Ingredients), mobile phone markets, automobiles and electronic and project imports.
HOW IS THE DRAGON’S MARKET INVASION BEING STOPPED?
The Government of India and RBI (Reserve Bank of India) lost no time in rectifying it’s policies.The government has decided to screen Foreign Direct Investments (FDI) from countries sharing a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country. The capital market regulator of India ,SEBI (Securities Exchange Board of India) is also digging deeper into Foreign Portfolio Investors(FPI) composition from China, by seeking beneficiary details from jurisdictions like Mongolia, Bhutan, Nepal, Bangladesh , Afghanistan and Yemen.
SO WHAT’S NEXT?
These policy changes have put an end to such hostile takeovers yet other measures need to be taken in order to mitigate China’s sway over the market.
Here we will be discussing how much our money is worth and the factors which decide its value and quantity available in the market.
Table of Contents-
The common forms of money are cash, digital wallets, and cryptocurrency. Money is the most liquid asset available today; Liquidity is the ease with which we can trade our assets for goods and commodities. Other assets are not as liquid as money. For example, if you want to buy a refrigerator with the help of gold first, you will need to trade it for its equivalent amount of cash. Then with that cash, you will be able to buy that refrigerator, and most commodities available for sale today can easily be purchased with the help of money.
Now coming back to the topic:-
The value of money is determined by the demand for it, just like the value of goods and services. There are three ways to measure the value of the dollar. The first is how much the dollar will buy in foreign currencies. That’s what the exchange rate measures. Forex traders on the foreign exchange market determine exchange rates. They take into account supply and demand, and then factor in their expectations for the future.
For this reason, the value of money fluctuates throughout the trading day. The second method is the value of Treasury notes. They can be converted easily into dollars through the secondary market for Treasurys.
The third way is through foreign exchange reserves. That is the number of dollars held by foreign governments. The more they hold, the lower the supply. That makes U.S. money more valuable. If foreign governments were to sell all their dollar and Treasury holdings, the dollar would collapse. U.S. money would be worth a lot less.
What Is the Forex Market?
The foreign exchange market is where currencies are traded. Currencies are essential to most people around the world, whether they realize it or not because currencies need to be exchanged to conduct foreign trade and business. If you are living in the U.S. and want to buy cheese from France, either you or the company that you purchase the cheese from has to pay the French for the cheese in euros (EUR). This means that the U.S. importer would have to exchange the equivalent value of U.S. dollars (USD) into euros. The same goes for traveling. A French tourist in Egypt can’t pay in euros to see the pyramids because it’s not the locally accepted currency. As such, the tourist has to exchange the euros for the local currency, in this case, the Egyptian pound, at the current exchange rate.
History of Purchasing Power
Until 1971 the dollar’s worth was measured against gold. Still, in 1971 that law was abolished. With that, it was no longer estimated with gold reserves, and soon after that, multiple countries followed the same. Nowadays, most of the valuable currencies are not depend on those countries’ gold reserves. The factors which decide its worth also include inflation, monetary policy, and other economic and political factors.
In India, we use the same measures to decide how much currency should be released in the market so that sufficient economic growth is achieved and a 2% rate of inflation is assumed to be necessary and safe for sustainable economic development. The Reserve bank of India has the authority to issue currency. The current system of the Indian government to issue notes is the “Minimum Reserve System.” Under this policy, the minimum reserves to be maintained in the form of gold and foreign exchange should consist of rupees 200 crores. Out of this reserve, the value of gold to be maintained is rupees 115 crores. This system was introduced in 1956, replacing the proportional reserve system, and continues to date.
Inflationis a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a while. It is the rise in the general level of prices where a unit of currency effectively buys less than it did in prior periods. Often expressed as a percentage, inflation thus indicates a decrease in the purchasing power of a nation’s currency.
As prices rise, a single unit of currency loses value as it buys fewer goods and services. This loss of purchasing power impacts the general cost of living for the common public, which ultimately leads to a deceleration in economic growth. The consensus view among economists is that sustained inflation occurs when a nation’s money supply growth outpaces economic growth.
In other words, if we print cash more than which is required and then release it into the market, it will lose its value, and if yesterday we were able to buy some commodity for five units of currency after inflation it may be possible that even 500 units of currency will be able to buy that same commodity
The Bottom Line
Because of inflation, your cash today is worth more than it will be in the future. But the day-to-day value of money fluctuates as well because of the volume of demand for it.
Reading Time: 13minutesFollowing is a blog prepared by taking the discussion CEVians had on 09 Sept 2019 as foundation and motivation.
The topic of discussion was “CURRENT STATUS OF INDIAN ECONOMY”.
If you are in a hurry and at any rate dont have time to cudgel your brain to understand this gigantic scenario then you are at the right place, just keep plugged. CEVs editing team do consider the people with big dreams that don’t have much time to know the affairs out of their domain. Just like you, we understand how critical it is -to know these things in an individual’s life and also -to determine your role as a participant of the Earth’s largest democracy.
So let’s begin with some numbers just to get all the readers on the same page.
SOME CRUCIAL NUMBERS AND FIGURES:
The GDP (Gross Domestic Product) of India bars at $2.972 trillion with a growth rate of 5.0% in April – June quarter, the first quarter of the fiscal year 2019-20.
In 2019 India slips to 7th largest economies from the 5th rank in 2018.
India slips to 7th position from the world’s fastest-growing economy in 2018.
Unemployment rate is at 7.91% in June 2019.
Five of the seven key sectors are witnessing slowdown or creeping growth rate:
Automobile sector is at a negative growth rate of -30.9%.
Textile grows at nominal 1.66% rate
Agriculture sector shrunk by 0.3%
Manufacturing is growing at 1.2%
Mining sector has a growth rate of 1.6%
Power generation, however, grew at a good rate of 8.2%.
Real Estate’s unsold inventory stands at 42 months, the healthy number is 8-10 months. The number of unsold houses has increased from 1.20 M in 2018 to 1.28 M in 2019, a seven per cent rise.
FMCG (Fast-moving consumer goods) companies like Hindustan Unilever, Patanjali, Britannia, Asian paints, Dabur India all of them dropped volume growth from double digits to a mere single digit.
The PFC (Private Final Consumption) is at dead low at 3.1%, which hung at healthy 7.2% in the previous quarter.
The new project announced including the public and private showed up a massive drop by 79.5% from the previous year.
Now all I want is to not get dejected by looking at these ugly numbers. It’s better to know hard truths than been pleased by bluffs. There are so many opportunities for India to get back. For that we need to understand from the scrap what exactly is pulling Indian economy behind and what needs to be done exactly.
WHAT DO THESE NUMBERS ACTUALLY INDICATE?
1. “Gross Domestic Product (GDP) is defined as the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of the country’s economic health.” – Book definition
Now, the Indian GDP is falling for the last five consecutive quarters.
The current rate is 5% which itself is disheartening but question have been continuously been raised over the data and reputed economists like Arvind Subramanyam and Raghuram Rajan suspects that actual figures might be even 1-2% less.
However, if we see GDP on a larger time scale we can figure out that the GDP of India in fact any country is not a constant number rather is cyclic throughout the fiscal quarters. And this effect is multiplied in India because of having huge diversity in markets.
It has been a little long time since the GDP is falling but we cannot conclude that India’s economy is in deep trauma by just seeing dropping GDP.
NSSO (National Sample Survey Office) report says that the nation in 2017 went to 45-year high unemployment rate @6.1 %, which in July 2019 touches @7.91%. However, Govt denies the credibility of the survey, following which two non-official members of National Statistical Commission (NSC), its acting chairman PC Mohanan and Mrs JV Meenakshi resigned. Now, this number is also cyclic with various seasons in India but such high % really puts a big question mark on the health of the current economy.
3. a.) Automobile Sector:
Many key sectors are not performing as they are expected. Most shocking numbers are of the automobile sector which has seen the highest negative growth rate in 19 years, last was @-35.6% in 2000.
The sales have been on a decrease for the last 13 months (since July 2018).
The Indian auto industry has a contribution of 7.5% to GDP and with a workforce of massive 37M, in both informal and formal sectors. The negative growth has made 2L job loss in the last three months only and projections say that shedding of up to 1M job in near months and quarters.
However, the auto sector was destined to this slowdown one day. It has its own reasons and other contributing factors too.
The raising Global warming concerns have made both govt and consumers lose confidence in petrol and diesel automobiles. Electric Vehicles, on the other hand, finding it too hard to penetrate the market due to technical and infrastructural issues.
But no one had expected such a sudden collapse, which indicates to some other contributing factor playing roles behind. Those factors would be explored as the discussion moves forward.
b.) Manufacturing Sector:
This sector was growing at significant 12.1% in Q1 of the 2018-19 year and in Q1 of 2019-20 fiscal year, it has dropped to shocking 0.6%. This dip majorly comes from the auto sector slowdown as it comprises of 42% of it. Overall industrial production has dropped massively from the last year. This drop-in production is not due to lack of resources or the shortage of labour (either skilled or unskilled) but it is rather weird. The market has full reserves of various products but the sellers aren’t able to find customers to sell them rather. Keep reading, the mystery of this slowdown will unfold soon.
c.) Agriculture Sector:
For decades agriculture has been the backbone of Indian Economy and still continues to be by providing a living for half of the pop. Literally, no one escapes from catastrophe if Agri is weak for a quarter or some. National Council of Applied Economic Research (NCEAR) a non-profit Delhi based economy think tank said in a report that as of August 2, 2019, 12 agro-metrological subdivision out of 36 in the country were rain deficient further adding that in 2019-20 the real agriculture GVA is expected to grow at 0.00%. If you didn’t get the meaning than knowing the fact that we had 5 major and numerous small farmers marches across the nation in 2018 would help you understand the situation a bit.
Indian farming is under distress due to depleting water table, extreme climate and unpredictable monsoon, and declining productivity for decades.
Crop prices are stagnant for years at minimal. Rarely farmers are getting more than what they put in, the declining rural wage is evident.
The rate of increase in farmer suicide is haunting.
Listening to the stories of farmer protesting by carrying mice in mouths, skulls of their dead mate, and 100-year old fasting for over 40 days are things we must have avoided to happen, for the god sake.
It’s pretty hard to understand why high profile figures died of personal problems find their way to be in the headlines for days but the 296438 farmers (1985- 2018) who chose to drink pesticide or something to kill themselves hardly find a space in the last page of a newspaper column even RTI activists have to struggle to get data only.
Published on 08 Jun 2018 in scroll.
The textile industry is the second biggest employer after agriculture with a total workforce of 100 M and contributes to 5% of our GDP. Thereby making India the largest cotton producer on earth. However, the spinning industry is struggling for a long time with profitability. The industry has shown a mere growth rate of 1.66% in this quarter.
Now you might have thought that you visited the mall last time you didn’t compromise on new clothes in any way. Then what wrong here!
Export went 34.5% down this year quarter than the previous year’s.
The NITMA (North India Textile Mills Association) was feeling neglected by agencies and thus used quite a weird approach to say their word. On 20 August 2019, they published an advertisement in a newspaper “INDIAN EXPRESS” to draw the Govt attention towards the severity of their current status.
They claim that 1⁄3 of India spinning capacity is already closed and those which are running are also under great loss. And this newspaper clipping alone is enough to say a thousand words on the current coordinates.
4. REAL ESTATE:
Contributing to 13% in GDP and employer of 55 M. The real estate caters a spectrum of industries in itself from the on-site construction to brick, cement, steel factories. We have masons, plumbers, electricians, engineers, architects, builders, brokers and a range of other professions forming a massive chain of employment.
And even this sector is not so profitable as far as past years and current situation are concerned.
A report says:
“Over 12.76 lakh houses are lying unsold in India’s top 30 cities. The inventory overhang is as high as 80 months in Kochi, 59 months in Jaipur, 55 months in Lucknow and 72 months in Chennai, implying it will take between five and seven years for developers in these cities to get rid of the present housing stock.”
This industry is mainly in slowdown due to implementation of govt visionary reforms like RERA, GST and others.
Here is from where you can explain all the sectoral slowdown.
India is a nation of 1.32 B hearts, the market is huge, and thus the inland consumption contributes to 50% of the Indian GDP. Though the nation is not a mega exporter still our own demand drives the economy. We have 70% of the Indian population comprising of rural folks, and currently in a phase shift from low to the middle class. And this is from where major demand comes from. You won’t expect huge continuous demand from middle-class society than from transforming rural low-class society. For example, when was the last time you saw someone purchase a new washing machine, fridge, etc in your society (located in a city). The answer is “a long time ago”, and this is called the middle-income trap.
Now you must have noticed how strong focus is laid on the agriculture and textile section in this post. The declining rural wages are forcing a large section of consumers to postpone their expenditures. Hence leading to the demand-side crisis.
Now the question is what actually happened to them?
REASONS FOR THE SLOWDOWN
Demonetization: However, some reasons are deep below but the demo was the event that began the chain reaction. Banning of high value 500 and 1000 Rupees notes on 8 November 2016 sucked 85% of currency from Indian markets. With a multispectral vision to squeeze black money, to promote digitalization and to stop infiltration on borders the govt merely achieved any of its goals but surely the event triggered a sequence of mishaps that has taken an ugly face now.
Farm prices began falling as the consumers were not able to buy the produce due to non-availability of cash.
Even though the demand was good in the market but demo had severely limited the ability of agricultural traders to buy produce from farmers.
Dramatically prices fall and farmers have to literally throw away the produce on roads.
This persisted for a long time and hence led to distress in agriculture sector triggering everything to come off track slowly.
That 70% of the population we discussed earlier stop making demands, and slowdown began.
But what happened to the urban sector, why it is also slowing down?
The clue is in the auto sector slowdown. We saw how cars and 2- wheelers sales have fallen, but on the other hand sales of trucks and commercial vehicles have also fallen and quite significantly. This is evidence for the fact that demand has really come down magnificently hence the transportation resources are not required anymore. Even IR have seen a decrement in rail freight, a tribble and horrible sign. At this point the rural problem transmitted to the urban scenery.
Various industries started slowing down production and to maintain their economy began shredding jobs.
The casual workforce available in the market became abundant and competition turned fiercely.
Consequently, the wages rate of casual labour came down and major urban demand driver halts.
Completing the loop which will soon bring the whole economy on knees if the government doesn’t take charge immediately.
THE GLOBAL SCENARIO:
Few parameters are determinant in indicating the status of the Global Economy. Let us have a look at some:
1. South Korea is a major exporter in the Asian continent products ranging from Electrical Machinery, Computer chips, Vehicles, Plastics, Medical apparatus, Iron, ships, etc have seen a dip since early 2017 and it is still declining @-13.6%. Which clearly indicates that the world is becoming a less open market.
2. Copper is used so ubiquitously from the household wiring to autos, TV sets, etc. The world’s largest exporter of Copper- Chile has seen a dip in exports. Indicating the slowdown the whole world is impending to. With overall auto sector slowdown on a global scale as govt across the globe continues to ban diesel cars in cities consumption of copper have decreased.
3. JP Morgan’s Global PMI (Purchasing manager index) tracker which show the health of manufacturing around the world, shows a declining graph from early 2018.
4. We are having big problems of extreme weather, climate change followed by nation backed cyber attacks and above all is a stand-off between the two nuclear states. These incidents give a whole lot of a reason for Global Slowdown.
WHAT DOES RBI ANNUAL REPORT SAYS:
Since we have promised to keep this short so interested readers take their own efforts to go through the detailed RBI Annual report, which cover various aspects of current scenario more vividly.
The numbers do indicate that the economy is in trouble but we need to be optimistic and we must not panic. The demonetization took a hard hit on the backbone of the Indian economy i.e. agriculture. The dropping rural wage has immediately stopped the demand in all sectors including the FMCGs. The rapid rolling out of visionary GST, RERA, IBC, NBFC, MERGER had somehow hammered the investor’s faith and trust and had plotted a fear leading to the real estate slowdown.
On the other hand, it is a stroke of awful luck that the global recession had coincided with our slowdown, which had a multiplier effect.
THE CEV WAY FORWARD
Cutting the taxes on automobile sector might not make a major difference, instead, somehow the consumers are needed to be enabled to make demands, which is only possible if they have money in hands.
The Government needs to put its money to build rural infrastructure (roads, schools, shopping complex) by assigning the project to small localised builders in the region. Which will in turn not only directly put money in the hands of the 70% of the population but also increase the economic activity in those areas.
The 3000 Cr spent in constructing the statue would have been instead used for the renovation of rural public properties like roads, community buildings would have more beneficial in both the short and long term.
MNREGA continues to languish and govt needs to focus to increase employment as well as wages. This will again be returned to govt as increasing economic activity will increase the tax collection also.
Various other fixes can be used to tackle this slowdown but we need to do a lot more to avoid such slowdown in future. The load on agriculture need to be less burdened. (The core reason of slowdown). There is an urgent need for massive employment. All of this is only possible if India pushes to become a manufacturing giant because the situation would have been diverted if we were good exporters. Manufacturing requires a rock-solid modern education system.
We spend a mere 1.8% of GDP on education in an era when the world average is 5-6%. (This also include mid-day meal budget!)
We don’t have any university or institute in world’s top 300. IISc at 301.
Less than one percent of students in higher education level are research scholars, the majority are just pursuing a BA degree in Arts, history, etc to just become graduate.
Stray animal walks into the classroom of nation’s topmost engineering college.
The government needs to be very definite in rolling out anymore reform and have to work in some way to establish trust in citizens again. It needs to empower the rural folks and give oxygen to the economy by pooling some money in rural India. Simultaneously we need to work out old melodies also. Education, health, quality of life, etc. all of this matter in a nation building.
Contrary to that the need of the hour is not just nation to develop individually rather the time requires all of the nations to play their crucial international roles. Global winds are challenging every economy around the world. WEF (World Economic Forum) reports say that 9 out of 10 economist expects the economy to worsen due to the rising geopolitical tensions.
At this moment the world needs to hold each other hand tight and push for a little better tomorrow.