According to Hotmail co-founder Sabeer Bhatia, if India wants to compete with China, it needs to reconsider how it gauges economic development and get ready for significant adjustments in workplace culture. Bhatia questioned India’s existing GDP calculation method in a recent podcast. He advocated for a new model that takes productivity and effort into account rather than just financial transactions. Bhatia attacked the way India calculates GDP. He claimed that it overstates economic output by emphasising financial transactions rather than real labour. According to him, India’s GDP is completely incorrect. And it only takes two seconds to look at how GDP is calculated. He added, “If I give you INR 1,000, 18% GST is taxed on it. If you return INR 1,000 to me, 18% of that amount is considered INR 2,000 in GDP. You haven’t worked at all. I haven’t worked. I just handed you some cash. Giving money is not a job. Good work is work.”
Comparing the Tax Calculation with the USA
He likened it to the way GDP is determined in nations such as the US, where economic output is correlated with the value of labour and the number of hours worked. Everyone has an hourly rate, he explained. Everyone calculates how many hours a person works, reports that information to the government, and pays a specific amount of taxes, which determines the GDP of the nation. Bhatia says that by implementing a work system that values human effort, India can address this issue. He said that the first step in fixing this in India would be to ensure that everyone is paid on an hourly basis. How many hours do they really spend working on their projects? In order to track work according to effort, he proposed setting fixed hourly wages for all employment categories, including physical labour, law, and medicine.
How India can Compete with China?
Bhatia opined that if India wishes to catch up to China’s advancements, it must address its deficiencies in technical skills and work ethic. India needs to change its work ethic, he said. Anyone who is willing to work in China is still valued, and engineers continue to work as engineers after graduation. He condemned the trend in India for engineering graduates to enter management positions rather than engage in construction or creation. After graduating as engineers, 99% of Indians go into management and begin offering gyaan to everyone. Where is the work ethic where they actually go out and construct things and work with their hands? He also drew attention to the value structure in society that prioritises outsourcing over in-house software development. He continued by saying that although he is the software master of India and the business guru of dealing in, you know, body shopping—not software—people in India admire anyone who works with their hands.
China has been one of the world’s leading economic powers for almost two millennia. Until the late 1700s, it accounted for approximately one-quarter of the global GDP (Gross Domestic Product). By the time the industrial revolution was beginning in Great Britain by 1820, China was accounting for approximately one-third of the global GDP. These numbers factually reflected that China’s GDP at the time was six times as large as that of Great Britain.
Under the leadership of Deng Xiaoping, the Chinese government began introducing economic reforms in the year 1978 which resulted in the country becoming the fastest-growing major economy in the world. China registered an average growth rate of 10% over the next 30 years. Its sustained growth rate could be attributable to its export relationships, its large-scale manufacturing sector, and the country’s low-wage workers.
As one of the largest economies in the world, the country was successful in avoiding the global economic downturn due to the Covid-19 pandemic. However, in the year 2022, it posted one of its worst economic performances in decades because of the pandemic.
As of the year 2020, the national debt of the People’s Republic of China stood at an approximate amount of USD 7 trillion. This amount was equivalent to around 45% of the country’s GDP. The off-balance sheet debt of Chinese local governments, as per the Standard & Poor’s Global rating, was amounting to approximately USD 5.8 trillion while the International Monetary Fund said that the debt owned by the state-owned industrial firms was another 74% of the total country’s GDP.
According to Forbes, at the last measure, China’s debt of all kinds – public and private and in all sectors of the economy – amounted to a staggering USD 51.9 trillion, which is almost three times the size of China’s economy. Since the time Beijing first began tracking such statistics, twenty-seven years ago, this amount is the highest level of debt recorded.
The Beijing-backed National Institution for Finance and Development has stated that local authorities are set to issue a new debt amount of approximately USD 570 billion for the next year. This precarious situation of China is further highlighted by its comparison of relative debt to the United States. By mid of the year 2022, China’s national debt was 40% higher than that of the US.
National debt refers to the outstanding financial obligation of a particular country and what the central government owes to its creditors. The amount of the national debt of a country represents the past annual budget deficits. It is incurred especially to maintain government services during a recession when tax revenues decrease and government expenditure increases. Government debt is also created to cover costs from major shocks like a war, a public health emergency, or even a severe economic downturn.
Reasons for China’s Increasing National Debt
In previous years, China had successfully managed to keep its national debt lower than the US. This was possible due to the policies that were introduced by the state. The national debt of China had usually been held by domestic institutional investors, in particular state-owned banks. The investment and lending practices of these banks supported government policies like issuing bonds for infrastructure investments and insurance companies.
However, in the last few years, the country has seen a consistently increasing national debt that has included government spending on development projects and slowing economic growth. The global financial crisis in the face of the covid-19 pandemic caused the state to inject more credit into government-owned enterprises. At the same time, Chinese authorities eased the way for companies to secure loans to restart the economy. This further increased the burden of debt on the country’s economy.
China’s Local Government Debt Crisis Explained
Impact of High National Debt on the Chinese Economy
China’s financial system is not entirely transparent. This is given rise to concerns about the amount of actual debt that is being held by local governments and state-owned enterprises. Other related concerns are also highlighted like the risks associated with high-level borrowing and the overall debt of the country. Having said that, China is hopeful of ambitious economic growth due to its heavy investment in infrastructure projects. The economy has also taken proactive steps towards a consumption-driven growth model, although, it is yet to yield results.
Despite the shadow that is cast on China due to its growing national debt, analysts remain optimistic about the country’s long-term prospects. They remain positive that although this will slow China’s ascent, it won’t derail the economy entirely.
Conclusion
The debt situation of China is set to grow further. There are two notable and significant issues impacting it. One is its demographic challenge with over 60% of the country’s population either retired or nearing retirement age. The second big concern is the country’s shortage of young workers which supports a growing aging population due to its decades-long one-child policy. This situation within the country is likely to continue for the foreseeable future and the country will rely heavily on debt to fulfill its social security pension obligations.
FAQs
What is the current debt of China?
As of the year 2020, the national debt of the People’s Republic of China stood at an approximate amount of USD 7 trillion.
What is National Debt?
National debt refers to the outstanding financial obligation of a particular country and what the central government owes to its creditors. The amount of the national debt of a country represents the past annual budget deficits.
Multicolored interlocking plastic bricks along with an array of gears and small figurines that can be assembled and connected in various ways to create and construct vehicles, buildings, working robots, and many other objects bring back childhood memories of playing with Legos. The brilliance of these pieces lies in their ability to be taken apart and re-used to build and construct new things. The brand, Lego, which is the world’s leading toy manufacturer today, derived its name from the Danish phrase ‘leg godt’ that means ‘play well’.
Commonly known as Lego bricks, the creative toys are currently sold in 130 countries. The brand recorded sales worth USD 3.6 billion in the first half of 2021 which was up by 46% YOY. It also owns 10 theme parks, a movie franchise, and above 600 stores globally. It has increased its product line to include DUPLO (which are larger bricks for younger children who are unable to handle smaller bricks) and a range of yellow Minifigures appearing in the company’s themed play sets. The company, which has marked 90 years in existence has been through a winding road of challenges and obstacles to reach the success pinnacle that makes it an unrivaled global toy empire today.
The year was 1932 and the world was going through tough economic crises. Ole Kirk Kristiansen, a carpenter in a small Denmark town, Billund, reapplied his skills to make wooden toys like cars, airplanes, etc. He named his company ‘Lego’ to reflect the quality of his products. In the year 1936, Kristiansen created a motto for his company, which when translated from Danish means “only the best is good enough”. A few years later, he was facing difficulty in sourcing wooden materials to make toys and turned his attention to the possibility of using plastic to continue manufacturing.
Wooden Lego
By 1947, Kristiansen expanded his manufacturing capacity to produce plastic toys and within the next two years, Lego began making their new interlocking bricks and called them ‘Automatic Binding Bricks’ – the early version of the now familiar interlocking tiles. Within the next four years, by 1951, almost half of the Lego-produced toys were made from plastic. Over the years, plastic toys from Lego have overcome the common anti-plastic sentiment, especially in children’s toys. This is mainly due to the high-quality standards set by its founder.
The Growth
It was Godtfred, Kristiansen’s son, who saw the immense potential in the Lego bricks to become a system for creative play through his conversation with an overseas buyer. Rising the company’s ladder to become the junior managing director in 1954, he set about correcting a few technical issues that existed with the bricks, like versatility and their limited locking ability. By 1958, the modern brick design was finalized and the company filed a patent application for it in Denmark on 28th January 1958. Godtfred said – “We wanted to create a toy that prepares the child for life, appealing to their imagination and developing the creative urge and joy of creation that is the driving force in every human being.” In the next few years, Lego also filed design patents in various other countries.
The DUPLO product line focuses on a range of simple blocks that are double in length, width, height, and depth and was introduced in the year 1969 for younger children. Almost a decade later, in 1978, Lego introduced the Minifigures which have become a staple in most of their play sets.
Minifigures – Lego
Two decades later, in 1998, Lego introduced a product line of bricks that was embedded with microchips to create programmable robotic packs. In the same year, the company was inducted into the US National Toy Hall of Fame. A couple of years later, Lego was named the toy of the century by the British Association of Toy Retailers.
Lego was crowned as the ‘world’s most powerful brand’ in February 2015 by the marketing consulting company, Brand Finance.
Brand Inclusivity
Over the years, the brand has spent heavily to remain relevant in an ever-evolving consumer market. Currently leading Lego is the grandchild of the founder, Kjeld Kirk Kristiansen. The toy company is producing bricks that are, even now, compatible with those that were produced in 1958. Lego has made significant announcements in 2021 that reflect the company’s deep understanding of a changing society.
Lego’s first announcement was that the company planned to remove gender bias from its products to curtail the harmful effects of stereotypes on the ambition of children. The second announcement was made in March of 2021 as it unveiled ‘Everyone is Awesome’ – the set that explicitly celebrated the LGBTQ+ community.
LEGO – Everyone is Awesome
The Economy of Lego
Lego’s journey to greatness has not been without its obstacles and challenges. But the brand has emerged from its battles ‘the Lego way’.
After filing the first design patent in 1958, the company sailed smoothly for three decades on the founder’s original ideas with no research into emerging trends or new markets. Troubles began when their patents expired in 1988. Apart from dealing with Lego-inspired copies cropping up in the market, the company was also faced with a newer version of child entertainment – video games.
By the late nineties, Lego was struggling for survival. To renew interest in their brick-building sets and keep the brand alive, the company spent enormously to develop television shows, beginning with Jack Stone, a versatile character appearing in various avatars who builds machines to catch criminals. The show was a complete failure along with another one titled Galidor: Defenders of the Outer Dimension. At this time, the only product brand that was keeping the company afloat was ‘Bionicle’.
A Complete Failure – Jack Stone Lego
Lego saw a small success when they sold their first group of Star Wars-themed sets around the release of the movie. However, the next year these sets did not sell as there was no Star Wars movie releasing and Lego had to absorb substantial losses. They repeated the same mistake with the Harry Potter sets and almost filed for bankruptcy. By the year 2003, Lego had built a debt of USD 800 million and recorded a 30% revenue decline.
Bionicle and Star War Lego
In a last-ditch effort to save the company, the board changed the management structure and a new CEO was brought in. This proved to be the correct move as he proceeded to make immediate and necessary changes by shutting down most of the unprofitable ventures for Lego. The company began diversifying by finding many production partners creating a channel of reliable income. Lego started creating and telling stories of the brands they partnered with. They began making their own stories and shows and their 2011 show Lego Ninjago proved to be hugely successful. This was followed by another successful show in 2013 – Legends of Chima.
Lego Ninjago
The Lego Movie which was released in 2014 recorded box office collections of USD 468 million. Riding on this success, the CEO Jorgen Vig Knudstorp said – “This has been the best year ever for the Lego Group. If I could sing and dance, I should be singing and dancing because it is a fantastic number of results.” The success of this movie resulted in a sequel and two spin-offs titled The Lego Movie 2: The Second Part, The Lego Batman Movie, and The Lego Ninjago Movie.
The Lego Movie
Conclusion
With the severity of the downturns that Lego endured, it is truly a miracle that the brand has managed to not only turn around but rise to its former glory again. Their business economics is focused on telling stories that people love. These, in turn, are fueling their sales. The 90-year-old brand has traveled a road with a few twists, turns, and bumps and has emerged stronger leading the global toy market with aplomb and glory.
FAQs
What is a Lego toy?
Lego bricks are colorful plastic building blocks that can be joined together easily to make a tower, house, and more. It is the most popular building toy in the world.
What is the average cost of Lego?
This value can be calculated by dividing the total set price by the number of bricks.
What is the target audience of Lego?
The main target market for the Lego Company is children between the ages of 1-15 years.
Is Lego suitable for all ages?
Yes, Lego is suitable for all ages. They offer Lego sets for children and adults in all age groups.
International economies are adopting unconventional stimulus measures, such as printing money, in response to the Covid-induced crisis. The United States, the European Central Bank, Japan, and even developing economies like Turkey and Indonesia are creating money to revive their economies.
Now as people have very smartly pointed out saying; “India must do the same.” The question entails, can India afford to do it? If yes then how will it help? as well as what India can do about it?
Now going by the textbook meaning, The Reserve Bank of India has a monopoly on printing the country’s currency notes. Except for one rupee note, it has sole authority to issue currency notes of various values (which are issued by the Ministry of Finance.)
So basically, the Central bank buys Government debts/ bonds – Which injects money into the economy – This is similar to printing new money, but this is done electronically.
Should the RBI print money to boost the economy?
The Reserve Bank of India
Is it as easy as it sounds? In India, small industries have sprung up recently, pleading with the Reserve Bank of India to generate money and give it to the government to spend.
The central government’s revenue collection through excise duty and the goods and services tax, or Goods and Services Tax (GST), has collapsed due to low employment and a sharp decline in non-essential consumption beyond food, medicine, and a few other basic products.
Given how adversely foreign trade has been affected in the post-Covid era, there is reason to assume that tax collection through customs duties has also suffered. The central government is expected to benefit from the recent significant rise in excise duty on gasoline and diesel.
Are Other Economies Doing the Same?
Yes, In April 2020, the Bank of England granted a direct monetization facility to the UK government, despite Bank of England Governor Andrew Bailey’s fierce opposition until the last minute. Similarly, the US Federal Reserve used it extensively to tackle the financial crisis of 2008, and the same pattern is being used to combat the Covid situation.
A snippet of an article published on the Financial Times website about the Bank of England granting direct help to the UK government.
The European Central Bank has lifted the restriction on the number of bonds it can purchase from any single Eurozone country. The Bank of England has come on record and said, If necessary, we are willing to lend money to the government on a temporary basis. The Bank of Japan will also purchase an infinite number of government bonds.
The Bank of England
Is Monetization Necessary?
In the past, The RBI “naturally” monetized the government’s deficit until 1997. Direct monetization of deficit spending, on the other hand, has downsides. Manmohan Singh (then-RBI Governor and then-Finance Minister) and C Rangarajan (then-RBI Governor) decided in 1994 to scale out the facility by 1997.
However, even Rangarajan now believes that India would have to monetize its deficit. “Deficit monetization is necessary. He recently stated that “such a big increase in expenditure cannot be controlled without monetization of government debt.”
State governments also aren’t making a lot of money from taxes. With lockdown in place for more than two years, private automobiles are hardly moving; as a result, state governments’ sales tax/value added tax revenues on gasoline and diesel use have taken a hit. Even though several state governments have raised the sales tax/VAT on gasoline and diesel, this trend continues.
At the start of the lockdown, alcohol shops were closed, and state and local governments lost all of the income generated through this channel. As a remedy, alcohol stores were opened amid the concern of societal tensions and moral concerns.
A snippet of the news article explaining the opening of liquor shops during the pandemic by TOI
As a result, both the federal government and state governments earn very little revenue from taxation. However, to meet its usual obligations (salaries, pensions, vendor payments, debt servicing, and so on), this is also the moment when the government is supposed to act as the last-resort spender.
Due to various reasons (varying from people being confined in their houses to the psychology of a recession setting in), private sector expenditure has fallen, and the government must spend money to get the economy moving again.
The above graph shows the Indian GDP growth for the years 2015-2021
Challenges for the Government
The central assumption against it is not really about how it started as it is about how it ended. This power, in theory, allows the government to boost overall demand at a time when private demand is falling, as it is right now. This instrument, however, sows the seeds for another crisis if governments do not withdraw quickly enough. But how?
Expenditure by the government with this new cash enhances salaries and raises private demand in the economy. As a consequence, inflation is fueled. A small increase in inflation is helpful since it stimulates economic activity. However, if the government does not intervene in a timely manner, more money will flood the market, causing high inflation.
And, while inflation takes time to show up, it’s sometimes too late for governments to realize they’ve over-borrowed. Macroeconomic instability is exacerbated by rising prices and government debt.
One argument against direct commercialization is that governments are seen as inefficient and corrupt whenever it comes to spending decisions, such as who to bail out and how much.
In short; taking most of these variables into account, practically everyone who has knowledge of regular economics or business recommends money printing. This is largely what representatives of this emerging small-scale industry are proposing, urging the RBI to generate money and the government to spend it.
Conclusion
As for the effect of Covid-19 on the nation, the economy was most affected by it. But to revive the economy, printing money is an option to consider or not is still a debatable topic.
It is best believed to provide better wages to the poor instead of directly dropping the pot of money to them. Yet, many countries have gone with the idea of printing their currency to revive the economy but with the increased inflation as an after effect.
FAQs
Does printing money cause inflation?
Increased money might create more need for products. This can also hinder the basic demand and supply model causing inflation in the nation.
Can a country print unlimited money?
Basically, there is no national restriction over the printing of money. Yet, printing money is a solution that is accepted by governments when the nation falls short of money. With increasing money in a nation, inflation will automatically increase and the power of currency will fall weak.
Who decides how much money to be printed?
Each country has different regulations and responsible bodies to print their money. For India, RBI is given the power to print money and decide on the same. Yet, the final decision is still kept under the government to decide.
What happens to an economy if the government print too much money?
If a country keeps on increasing money, inflation will rise an equal percentage. With the situation, there can come a time when inflation will be highest in the market because of no supply of goods and infinite demand.
You can hardly predict some cancers before it grabs the whole body to an extreme stage. Basically, hyperinflation is a wolf under the sheepskin. The news, the experts, the cunning industry, and even the government may hide the truth to protect the aftermath. Many companies employ a widespread technique to convince the consumers that costs are stable, even though you’re paying more for less weight with the same packaging. Hyperinflation is a negative catalyst that may act slowly but steadily to summate long-term accelerating inflation. So, we will go through 7 case studies of hyperinflation-affected countries of all stages (growth, maturity, and decline) in the economic graph.
Hyperinflation is a terrible stage of uncontrolled inflation with a sustainable panic of supply shortage despite paying more. A country has to face the problem when it has enormous national debt, declining foreign reserves, and long-term political uncertainty. In external events, such as war, and lack of global confidence in the economy, worldwide pandemics push the problem to a negative slope. A government will fund its reaction to the crisis by taking on debt, but it can’t afford services and releasing additional money in the market to make up the difference. Twitter co-founder Jack Dorsey’s tweet at the end of October 2021 fuelled the panic of hyperinflation across the US amid the tough time of the pandemic.
Global Inflation Rate from 2016 to 2021
Countries that Faced Hyperinflation
Hyperinflation is a dreadful state of condition for any country. The following are some prominent countries that faced hyperinflation and the reasons behind them:
Russia
The world’s second-largest arms and crude oil exporter, Russia is heading towards significant inflation, possibly a burst into hyperinflation. The economic data coming out during the Ukraine invasion is not very healthy. Apart from the war, the Kremlin is fighting with an internal three-point trap triangle of (hyper) inflation-pandemic sanctions. As per reports, the Russian regulatory bank called CBR raised the interest rate by 20% to save the ruble from the western red eye of sanctions. As a result, the ruble tanked at a record low of 25% this March.
Amid fear of losing oil and arms export hegemony, the country faces isolation from the West and the US. Investors are trying to get into a safe escape. Many billionaires shut down their business operations as a protest. The economy is being drained of cash. One month down the line of conflict, Moscow enrolled with 3.5 lakh Ukrainian refugee shelter houses, and inflation zoomed up 15.66% this March-end, expecting a 20% fear of inflation in this financial year as per a central bank survey. SWIFT system and payment card firms are ceasing operation in Russia, which is a significant setback for the country. The CBR is struggling to control capital outflow( movement of an asset out of a nation), escalated by the record-long shut down of the Moscow exchange.
Moscow’s financial advisors have shown public confidence to revive their internal banks with additional reformation. It will take some time to confirm the post-invasion period Russia copes with the odd or cross the red inflation line to join the hyperinflation club. Though, as per experts, it has intense symptoms of hyperinflation.
Russia’s Ukraine Invasion
Iran
In March 2022, the Statistical Centre of Iran (SCI) reported an annual inflation rate of 40.2%. The Islamic Republic owned 10 % of the world’s oil, 15-17% of its gas reserves, and 7% of its minerals. So then, why is Iran also sinking towards hyperinflation? Literally, Iran has everything for cooking except the cook!
Weak diplomacy also pushed EU and US sanctions on energy, tech, financial service, and foreign trade. Iran’s president asked its central bank to stop releasing data as it is higher than the SCI tally. Diplomatic gaps weaken the trade deficit.
The country is suffering from basic needs like water. Protesters rioted in Tehran’s streets, resulting in deaths and arrests. The country is accused of state-sponsored disinformation, a dangerous trend to hide the disease rather than treat it.
A silver lining of hope is raised after the US Congress gets its new president from the democratic party in January 2021. Iran is trying to get the Indian market oil with a rial-rupee deal. The US-Tehran has shown some positive signals of melting down relations with the nuclear deal ahead of the Russia-Ukraine war.
Turkey
Ankara crossed the 50% inflation red line and entered the hyperinflation zone with a 54% index as of March 2022. Despite president Recep Erdogan’s battle with the recession, the Turkish people have not achieved a new normal since 2018. His equation to fight inflation is lowering the interest rate. Unfortunately, his flawed policy slipped the currency lira to a loss in the last year. The uncontrolled depreciation of the lira has created a hugely detrimental impact on the economy. There has been a certain increase in the exports, but the following adverse consequences are more than the actual gain:
The significant drop in purchasing power is the result of devalued currency; the salary class people need to pay more lira for the same or less product. Therefore, the loss of purchasing power is a severe impediment to economic growth.
To minimize the inflation risk, Turkish banks have stopped encouraging lending to ensure less money in the market. It has no option when they are unable to raise interest. In the long run, it has an even worse effect on increasing the country’s brain drain. Foreign currency is taking a break, and investors are rushing out of the country. This leads to job or employment problems at worst.
The civil war inflicted on Lebanon’s lira is losing the battle and ending in triple-digit inflation of 215% in front of the US currency. It is enough to cripple the retail, health, transport, and fuel sector investment. With 78% poverty, the country is trying to get a good deal from the IMF. But the corruption grappled the country at such a deep level that its central bank had to face inquiry and slap from the lawsuit. The United Nations confirmed that the Ponzi scheme was a major red flag behind the economic meltdown. Beirut tried to reshape its economy with tourists to the Gulf help. But in 2011, the neighbouring Syria unrest put the country in financial collapse again. In the meantime, the Hezbollah-Iran tie miffed some major gulf countries.
The fall of money was fuelled by the central bank’s direct financing of the government’s public deficit during the civil war. As a result, money has entirely lost its essential rules and everything that made it a reliable store of value. The Govt, despite a defaulter of foreign debts trying to survive with the help of the World Bank and IMF. Another good news is, recently, the new Lebanese govt got a ‘positive outcome’ certificate from the Saudi kingdom. Hope it will improve their credit pipeline.
Sudan
After a military coup, riot, and political uncertainty, the East African nation is more chaotic; debt-trapped Sudan announced it would float its currency as economic conditions deteriorated. According to United Nations officials, Sudan’s food crisis is expected to drop due to the African country’s economic collapse, displacement, and ruined harvests. After the military took over the US, IMF and World Bank suspended their million-dollar aid and SDR (special drawing rights of IMF). Another setback is that the separate region of South Sudan holds 75-80% of oil production in the Upper Nile state.
Since 2016, the country has faced a lopsided economic downturn, covid and coup pushed it on the verge of catastrophe. With the shrinking GDP of 2020 by 3.6%, the country summed up the cycle and added a 359% inflation rate. World food program data warned that about 5.8 million people suffer food shortages and malnutrition. In the current scenario, the political paralysis of Sudan is a significant issue of hyperinflation and food shortage. Moreover, it blocked the foreign fund in the African nation.
Inflation among countries
Zimbabwe
Are you fed up with hearing about hyperinflation in different countries? Here is Zimbabwe for you with a ray of hope. The government had robust growth of 838% inflation in July 2020, and now, there is a significant drop at 50% in August 2021. During this challenging time of pandemics, war, and sanctions, it is not easy to revive the economy from hyperinflation in such a short period. Chronic symptoms of hyperinflation are coming out like lower growth, hunger, a debt-driven economy, low income, jobless youth, and collapsing health sector. It was not fun when the African bread bucket turned half of the population into a beggar.
It was a tough time for the drug-addicted, debt-ridden country when it was announced as having the highest inflation rate in 2019. With a fast depreciating currency and hyperinflation nearing 800%, most commoners watched their hard-earned money turned into a paper bunch. The country suffered 90% unemployment which coerced University graduates to sell vegetables in the market. The confused Reserve Bank of the country introduced a bond note with a 1:1 value against the dollar, but the market doubt was fainting its importance rapidly. In 2019, the Reserve Bank announced RTGS$ and banned foreign currency in domestic transactions.
Pandemic norms encourage digital payment worldwide, and it was reshaping the economy of Zimbabwe. It pushed the RTGS to POS transactions. EFT(Electronic Funds Transfer)and the Card payment system showed robust growth in 2021. Thus, it saves money printing the ‘need’ of a hyperinflationary economy. The rural part also enjoyed financial inclusion (finance access to the poor class), and the govt can track them with the tax system. The untapped section is directly under the payment system. Online transaction access to the internet among youth generates various business ideas worldwide. Bitcoin and crypto came to the discussion table of policymakers.
Venezuela Inflation Rate as Compared to Previous Year (by Statista)
The South American Country seems to be the king of the hyperinflation kingdom without any competitors nearby. In 2018, it reported 65,374.08% inflation, which means people need to carry money in a car dicky for daily retail shopping. A bunch of cash becomes useless in the economy. In the same year, 48k teachers left the country (remember, they are not sacked) to relocate to neighbour-based countries for livelihood.
There was a mass exodus in the middle of 2018. About 4 lakh people left the country, and it was not for armed conflict but terrible hyperinflation. Among the country’s top human resources, doctors, professors, and IT professionals were fleeing the country, leaving unfilled posts. The country faced mass blackouts, and people used candlelight or cell phones during an emergency. The country dried out of medical supplies and doctors; patients had to wait for half a year for an emergency operation.
Critics blame policies of socialism. Experts accused the country of suffering from printing money and a fiscal deficit. Once known as the giant supplier of crude oil, the comfort of the oil zone hit back Venezuela in 2014 after oil prices fell continuously. Since 2014 the country has shown a significant drop in GDP in negative growth.
There is a thin sign of revival in 2021; Venezuela reported a surge of the foreign reserve by $5.1 billion. The country’s central bank claimed to curb inflation by ‘only’ 686% for the same year, a great short-term relief.
Conclusion
Here we did not consider the crisis-hit Sri Lanka or war-torn Ukraine. Moreover, since August 2021, Afghanistan has been out of the internal statistical audit.
Therefore, there is a high possibility that the hyperinflation club will get new members. On the other hand, controlling hyperinflation is far more difficult due to the enormous political cost of the typical solutions. In reality, one reason that can turn inflation hyperinflationary is the populist administrations, which are being trapped in a situation where they cannot make practical efforts to reduce inflation.
It is better to control it in the inflation stage. So, the policymakers or government need to take some bold and reformative steps to prevent the money flow in the economy. It also needs diplomatic efforts, so that the countries can avoid printing $100 trillion notes like Zimbabwe.
FAQs
What is hyperinflation?
Hyperinflation is extremely high and rapidly increasing inflation. It is said to have occurred in an economy when the prices rise over 50% in one month due to economic disturbances and depression.
What causes hyperinflation?
The main causes of hyperinflation include:
High National Debt
Price control that leads to an increased shortage
Economic output decline
Lack of faith in government
Which countries are facing hyperinflation?
Venezuela
Sudan
Lebanon
Iran
Zimbabwe
What is a healthy inflation rate?
A healthy inflation rate is 2% which is considered good for economic growth as in this situation, people are more likely to make purchases in the present rather than wait when they expect prices to rise.
Money has always been the prime driving factor of any economy since human settlements started to be sophisticated. From the barter system to the current complicated transactions, the value of services and objects has always been a determining factor. And this value is satisfied today largely through the use of money.
As our economy goes through its highs and lows, it is inevitable that people get confused as to whether they should spend money or save money. This is also because of the fact that there is an unending cycle caused due to the necessity to save money to buy services and to spend money to buy services.
We have always been taught to save money as much as we can. The more we save and the less we spend, the better will be the financial security and stability of our economy. This is something that is constantly fed on to us.
However, Economists across the world have a different opinion in this regard. They say that consumers should strike a balance between spending and saving. It will be harmful either for the individual or the economy if this balance goes off.
Why you should spend money to Support the Economy?
GDP of India
As far as the economy is concerned, consumer spending is a very important thing to keep it stable and better. Had the rich people of the past and present decided to save their money in their closet without spending it, there would have been absolutely no progress in the economy.
The national economy improves only when there is a healthy flow of money through all units of transactions. This is because when you make any kind of large purchase like a house, car or shop; it creates a ripple effect in the economy. It will start to benefit the people associated with the industry and the other local businesses. This is due to the circular flow of money in the economy. Your spending will become another person’s income and vice versa.
Lack of consumer spending can even lead to an economic slowdown. This happens because of the before-mentioned ripple effect. When money doesn’t flow, companies will be unable to reach their profit margins, there will be losses, it will in turn affect the incentives and salaries of the employees which will further affect the people who are dependent on them. Like drivers, house helpers, street vendors etc.
When that happens, the purchasing power of people is affected which will adversely impact the supply-demand nuances of an economy. It can even lead to a recession when left unchecked.
Spending also does not mean that you should use up all your money. It should be in ways that will benefit you immediately or in the longer run. It should first satisfy all your needs. When it comes to wants, you need to analyse what all you actually have to spend for and take a decision that best suits your conscience.
Things to know before you spend to Support the Economy
Check your surroundings
The fact that you should spend money does not mean that you should do it blindly. There are a lot of things that you need to consider before that. The spending capacity of every person varies, and it is based on this capacity that one should control their spending.
Career and Spending
The first thing that one needs to look for is the general employment condition. Analyse if the job you are in at the moment is stable, is it in demand, are there any chances of layoffs etc. Apart from that, analyse the growth of your company as well. If it is expanding over the years, then it is a positive sign.
You need to have a backup plan if there are any chances for unprecedented repercussions. For example, uncertainty is more if your company depends on something external for their expansion like weather, any particular raw material etc.
Family Planning
Your spending should also depend on the nature of your family. Have a thorough analysis of the future plans of your family, your health conditions and also your parent’s plans. Your spending pattern will vary depending on whether you and your partner are planning to have any children, expecting any large repairs on your assets, potential health issues, or retirement plans of your parents, among other things.
Why you should save and invest money to Support the Economy?
While we talk about the importance of spending to boost the economy. Let’s not forget that all kinds of spending are not the same. It should have a long-term reciprocal benefit as well. A logical analysis of the economy shows that the route to improved productivity of a nation lies in the improvement of capital goods.
This can be done only when you save your money and invest it in productive activities. However, be mindful that saving is totally different from hoarding. This is the reason why it was said earlier that one needs to strike a balance between spending and saving.
Saving does not mean dormancy of your money. It simply means that it is entrusted with productive activities that will subsequently improve the economy, unlike hoarding.
Things to Know about Savings
People tend to inherently have an attitude to save money due to the constant reinforcement we have had about financial management. However, everybody needs to know about certain nuances and advantages of savings and how they will impact the economy.
Safe haven
If you have good savings means you are better protected against debt. You can cover your unexpected expenses without taking a loan. It is indeed a great relief considering the repercussions that a thoughtless loan can have. Along the same line, it will help you control your living expenses and thereby finish your loans as soon as possible. This means that your ability to recover during an economic hardship is higher and that will further improve the chances of recovery of the economy. It also means that you are better protected when you are living on your own means.
Savings are not without any risks. Depending on the condition of your nation’s economy the value of your savings can increase, remain constant or depreciate. People who save and invest will have to pay a huge price if the economy goes through a recession. So brace yourselves for uncertainties and losses while you save as well.
Knowing the Difference
The balance that we need to have between spending and saving is the most important discipline that we need to follow to support the economy. To spend does not mean that you should use your money to buy all the things you want.
Neither does that mean that you should donate everything you get. You should be able to analyse your needs and wants. Have a critical approach to decide on which all of your ‘wants’ should you address after satisfying your needs.
This critical approach goes for saving as well. Saving all your money in your drawer does not help you or the economy. For your savings to improve, you need to channelise them in the right direction. Make sure that they are productive activities and will positively influence your savings. It is also important to remember that savings do not equate with hoarding.
Conclusion
As responsible citizens, we need to be mindful of the options we have with regard to supporting our economy. At the end of the day, a healthy and expanding economy will be beneficial to each one of us. When you spend, make sure to do it in a way that is most useful to most people around you. And while saving too, make sure that it improves over time. Let’s all do our part to help our nation prosper.
FAQs
How does spending increase economic growth?
Higher government spending will also have an impact on the supply-side of the economy – depending on which area of government spending is increased.
How do you build a strong economy?
Keeping Manufacturing Units in the Country and reducing the cost of borrowing and increasing consumer spending and investment can help in building a strong economy.
Is saving bad for economy?
A rising personal saving rate can temporarily slow economic activity, assuming no other changes to income.
“Inflation”, you might have read or heard this word often in the Economic section of a newspaper or a news channel.
Inflation is one of the metrics to measure a country’s economy. It is a measure of the rate of increase in the pricing of goods and services.
Let’s say, in 2021, a kg of Apple was ₹100. In 2022, the price went up to ₹120. So, that would mean inflation of 20%.
In calculating a country’s inflation, many products and services such as housing, food, transportation, clothing, medical, and others are taken into consideration. Next, the prices of these products and services are taken into a group and the rate is calculated in percentage, keeping that year as a base year.
As the inflation rate increases, the cost of living will also increase. However, the average income remains constant.
This way, the majority of the country’s citizens may find it hard to balance the cost of living leading to a financial crisis.
So, what can be the possible causes of inflation? This article lists various causes of inflation and the consequences of worst-hit inflation.
Inflation can be caused because of various reasons with demand-pull and cost-push inflation being the most common. Besides this, a country’s economy can also be shocked due to various factors as discussed below:
As the name suggests, this effect is associated with the growing demand for goods and services. demand-pull inflation may occur when the demand is higher than the economy’s ability to meet those demands.
With increasing demand, the prices may rise and the consumers will have to purchase at those prices causing disbalance in the economy.
Take an example of a music concert. If the number of seats is less and the demand is high, the ticket prices would eventually be increased and sold to the ones who can pay for them.
Demand-pull inflation usually happens in a growing economy and is not always a negative sign. In fact, the Federal Reserve suggests that inflation of 2%-3% is considered healthy for the economy.
2. Cost-Push Inflation
This is one of the most common reasons for inflation and increasing prices. When the cost of manufacturing or raw materials increases, the companies will increase the product prices to meet the profits. This increases the burden on the consumers as the prices are controlled by the companies or the industry.
Cost-push inflation may happen if the government has increased the taxes on certain materials or the new laws have made imports or exports expensive.
The other possible reason could be the increase in taxes. If the government has hiked certain taxes that may affect the corporations, they are likely going to increase the pricing to meet the production costs.
Inflation Rate in India
3. Devaluation of Currency
Devaluation is defined as the lowering of a currency’s value, which then reduces the currency exchange rates. Devaluation affects inflation indirectly.
When the currency value lowers, the export rate becomes cheaper resulting in increasing exports to the foreign countries. Further, the import rate increases and the devalued country results in increased imported products.
As a result, the citizens turn toward domestic products, increasing the demand. When the demand surpasses the production, the cost increases, resulting in the demand-pull effect.
The recent economic crisis in Sri Lanka with an inflation rate of 17.5% is attributed to the devaluation of its currency.
An increase in the circulation of currency can be one of the major causes of inflation. Printing or circulating excessive money is never a solution to support the falling economy.
Printing more notes, cash, or coins that country’s economic growth is only going to devalue the currency and bring it down.
The lower the costs of export, the higher will be the dollars and foreign buyers.
Again, this results in demand-pull inflation increasing the costs of production. This, in turn, puts financial pressure on the citizens of the country resulting in higher prices and increased inflation.
One such example is Zimbabwe’s increased money supply in 2008. The country was already in debt when its government decided to increase the money supply.
Due to the increased circulation of currency, the demand skyrocketed resulting in a shortage of supplies. As a result, the cost of production increased and the suppliers had to raise the prices.
The government then tried to control the prices of basic goods, but this cost was much lower than the cost of production. And, the supplier wasn’t left with many production units.
In 2008, the country’s inflation rate reached a shocking 231,150,888.87% causing hyperinflation.
5. Wage Push Inflation
An increase in the average wages of the workers or employees can be a contributing factor to inflation.
Higher wages and the increased cost of production are tied in a circular loop. If the rise in wages is high, the companies will have to increase the costs of production or adjust to the lower profitability. This is a case of cost-push inflation. Now, if the wages are increased, the companies may cut off the employees and this will only increase unemployment.
That said, the general rise of wages to keep up with the increasing inflation will have put less pressure on the economy.
What are the consequences of Inflation?
As inflation continues to grow, it may affect your cost of living, investments as well as future retirement plans.
The increasing prices may reduce the consumer’s purchasing power cutting off the costs of living. In worst-hit inflation, the citizens may even fail to meet the basic necessities.
This would result in lower profits, higher layoffs, and an increased rate of unemployment. To combat this, the countries may seek loans from the World Bank, IMF, and other financial organizations.
Further, the growing economies may lend loans to the countries facing hyperinflation with higher interest rates. This may lead to higher debts and worsened inflation.
Conclusion
Inflation can make or break a country’s economic growth. Optimal inflation of 2%-3% is considered positive whereas the inflation rate of 50% or above in a month can result in hyperinflation.
The above-mentioned causes of inflation should be regularly checked by the government and the financial institutions in the nation. The balance between demand-pull and cost-push would bring stability to inflation.
FAQs
What are the 5 causes of inflation?
Demand-Pull Effect, Cost-Push Inflation, Devaluation of Currency, Increase in Money Supply, and Wage Push Inflation are the 5 causes of inflation.
What are the main causes of inflation in developing countries?
Government spending, money supply growth, world oil prices, and the nominal effective exchange rate are the main causes of inflation in developing countries.
There are over a billion cricket fans in the world and 90% are Indians. Whoa!
With that kind of following, one can’t complain that cricket is called a religion by millions in India. But guess what, there’s a bigger religion with the biggest fan following in the world – money, moolah or currency!
Apparently, BCCI (the richest cricket body in the world) fancied this in time, founded the commercial format of the game in the form of Indian Premier League (IPL) in 2007 and IPL became cricket’s most glitzy, glamorous festival. Add to that, its association with the entertainment business and corporates is something that added more fuel to the cricketing carnival. Today, this sporting event moves and shakes the economy beyond words.
We are a religious nation but also a secular one. So, while some of you will devote yourselves to your favorite deity (player/team), the not-so-religious ones can keep up their excitement by following IPL’s money trail, or in other words, the direct/indirect impact IPL has on our economy. It is no less interesting than the matches themselves. Follow through the end to know-how.
A little flashback first – The Indian Premier League aka IPL cricket championship began in 2008. It has a ’20-over’ format, hence called Twenty20 (T20) tournament. Currently, it has already passed the 14th season in 2021, which concluded with Chennai Super Kings, who took the 14th IPL winner award, as the 4th title home. The IPL tournament constitutes eight teams, where each team is set to play two games with each of the other competing teams, totaling 60 matches over a month and a half.
Basically, this professional sports league has been conceptualised on the lines of the famous UK/American leagues such as the English Premier League, NBA, MLB, NFL et al. The frenzy behind is no less.
Now let’s talk numbers because what is cricket without it. Hang on, we are not going to discuss cricket scores or static stats like run rates, most centuries, or ducks that are overdone anyhow, but instead lay out some dynamic economic data.
● IPL brand value: $4.7 billion, which has noted a 7% rise, as per the February 2022 reports.
● The highest source of income: Media rights, which make up for 60% of its revenues.
● Team with the highest brand value: Mumbai Indians (MI), the value of which has increased by 13% to become $79.5 million.
The real game
Can you guess how many Pani-puris or Pizzas are sold during a match? No idea? Okay, what kind of creative lies do men invent to skip how many productive work hours to watch a match? Can’t say? Fine, at least how many memes, jokes and posts are created during IPL? Duh! Are you even serious?
Alright, the cricket craze hasn’t stumped us that bad. We were only checking your entertainment quotient. After all, it’s the fun persona of cricket branded as IPL, that we will talk about.
Yeah, so let’s show you some real economic figures. From 100s of crores poured in annual auction of players or million and billion dollar deals signed amongst BCCI, sponsors, global media houses, advertisers, etc., not to mention the heavy business activities that take place during and around an IPL championship. Money just flows across various sectors for this Kumbh of cricket. This results in a solid boost in the finances of not only the players, the BCCI, the mammoth size corporations, but also of the government as well as the nation.
(Well, we won’t disappoint you in any way, so check out the best few memes/ jokes/ tweets on IPL towards the end)
We like the American yardstick a bit too much. So, here’s a comparison of the salaries of our players with top US league players.
Average annual player salary in the sports industry
Wow! IPL is second on the list, right under NBA (National Basketball Association). However, we already knew that our cricket/IPL players are awarded pretty handsomely.
Although cricket falls too low in popularity among other global sports like football, basketball, baseball, hockey, etc, but hey, as promised we are only talking about the economics of the game and there we don’t fall too behind.
BCCI, franchises or players – the bigger beneficiary?
BCCI earned INR 4,000 crores from IPL 2020, according to its treasurer. This means every cricket fan contributed 40 rupees. Actually! So, be proud, because you’re not just a passive viewer but an active participant in the economy. Need further proof? Well, the TV and media rights of IPL has been sold for a massive 2.3 billion dollars approximately (INR 16k+ crores) to Star Network.
Here are a few more fantastic figures vis-a-vis IPLs that you can use to tickle your imagination or just revel in delight while you enjoy a match.
● Title sponsorship – Tata Group has replaced the Chinese phone maker Vivo as title sponsors for the 2022 and 2023 seasons of the cricketing phenomenon. Vivo was reportedly booked earlier as title sponsors for the period of 2021-2023, which is why Tata will remain the main sponsor with Vivo next in line, with 2 remaining years of contract with them still.
● Media rights – While we have seen BCCI selling the media rights to Star Sports for INR 16,347.5 crore for the global broadcasting rights i.e. TV & digital for 5 yrs (2018-2022), the cricketing body is now mulling over the expansion of broadcasters where the others will also share the rights in 2022. The deal value for the media rights in the previous installment of IPL is 1.5X from that of the year before. Well, this leap of faith is backed by guaranteed advertising revenues these media giants get. By the way, IPL 2021 ad revenue was calculated at INR 2,950 crores, only in TV advertising.
● Ticket sales – Nil for 2020 as well as 2021 as both seasons were held behind closed doors due to COVID19. Nonetheless, on-air sponsors have multiplied every year and thus the money came pouring from them. Over 10 sponsors, big and small, strike multi-crore deals with each franchise. The rising digital viewership is certainly set to more than offset that loss. However, the IPL 2022 matches are estimated to have a seating capacity of 25%, and the ticket sales have already started going live from 12 pm on March 23, 2022.
● Sports/cricket tourism – 100% loss again! This is one sector that has suffered immensely and globally since the onset of the coronavirus pandemic. So, one can’t really factor it in here. However, with growing relaxation of the pandemic-induced rules, we might see some tourism in 2022.
No one said that religion was just about finding God? It is also about deity worship, rituals, festivals, and much more. Take a hint from it and admit that cricket too isn’t just about fitness and health anymore. It is also about entertainment, business & fun. The government of the day realised it and brought IPL’s income under the tax net.
Income means taxes and taxes mean revenue for the govt. Did you know BCCI was considered a charitable organisation under the IT act, thus, paid zero taxes? Govt took away that privilege in 2012 from BCCI & declared IPL as a commercial activity hence taxable. Although BCCI hasn’t accepted it to date.
Whilst fist-fighting with the Govt on this issue in the background, BCCI has paid little over INR 460 cr to settle tax dues (of an earlier assessment year) in September 2019. However, with 400 million viewers and 400 billion viewing minutes recorded last season, perhaps it’ll have to pay up the balance dues which is close to INR 1300 cr. After all, taxes are a necessary evil.
Okay, but how does IPL affect your and my economy
Good question but a little premature. Happy to explain because that’ll affect my bank balance or say the economy positively. See! That’s how the economy in essence works. There are no free lunches. Likewise, when those big brands like Royal Stag, Flipkart, Vivo, Jio appear on your screen in the middle of an exciting match, you may not like it much but the brands have knowingly or unknowingly made an impression on your mind. With repeated such displays, you tend to remember the brand name for a long. That’s how they increase their customer base. Boom! The brand sales might hit the roof and you may think that you just bought one beer to cheer.
What about the sponsors whose names show on your fav player’s (deity) jersey/cap/bat or placed on the field and other conspicuous places? They get the desired visibility and attention for their brand.
It is not just these purchases and just the sponsor companies that benefit from the IPL excitement. Other businesses and sectors also gain from the festive mood revolving around the religious sport of India, cricket, and cheer too. This is because economic activities always have a ripple effect. For instance, if you are a YouTuber, create content around cricket/IPL & cash it on. If you are an SM marketer, an influencer creates that perfect meme that goes viral faster than any known virus to mankind.
Religion isn’t just about finding God; it is about deity worship, rituals, festivals and so much more. Take a hint from it and admit that cricket too isn’t just about fitness and health. It is also about entertainment, business, and fun.
Let’s dig a little deeper. Sometimes religion pushes its followers into fanaticism and fascism. Cricket too has its dark side. Nah, not talking about betting rackets here. Check out this tweet.
This is just to leave you with an afterthought.
Lets team up this season – on and off the field
Cricket is inherently a sport. And a sport is packed with emotions. So without the energy of a live audience cheering for the teams…emotions run dry. We can’t be emotionally stuck in the pre-COVID era either or reject changing realities of our times. So how do we keep up the enthusiasm? By consuming some great content, like this one? Let us know what you think! Because we passionately & constantly work to score more & more points from our readers.
Conclusion
To end on a lighter note – ‘Stay home, stay safe’ was and is the mantra of the pandemic age, and if you choose otherwise, then take adequate precautions while going out and remaining outdoors. ‘You could cheer for Dhoni or AB de Villiers, so long as you stay fit until next year!’ may be your mantra for IPL 2022, which is starting on March 26, 2022. So, let’s have a field day!
FAQs
Is IPL good for Indian economy?
The IPL teams earn revenue through their sponsors and the sale of merchandise of their kits and garbs. To sum it all up, IPL has an impact on the Indian economy as it produces numerous employment opportunities.
How much does IPL contribute to Indian economy?
The brand value of the IPL in 2019 was $6.7 billion, as per the Duff & Phelps report. According to BCCI, the 2015 IPL season contributed ₹11.5 billion (US$160 million) to the GDP of the Indian economy.
How much is IPL worth?
The brand value of the IPL, as per the reports dated February 2022, is $4.7 billion, which witnessed a 7% increase lately.
When is the IPL 2022 starting?
IPL 2022 is starting from March 26, 2022, as per the reports.
When will IPL 2022 end?
IPL 2022 will be ending on May 29, 2022, as per the reports.
So, that day of the year is finally around the corner when friends, families and individuals celebrate love, compassion, and relationships with their loved ones. It is not just another celebration, or simply a special day as one may think it is, but this day has quite a significance when it comes to business and economics, globally. It is a revenue-driving force in many essential sectors across the globe and this blog is a testament to what Valentine’s day promises to be – for the gifting industry and anything that connects to it.
From flowers to jewelry, and from teddies to clothing, the numbers speak a different story about the importance of Valentine’s day and its impact on economies.
So, let’s take a dive into the Valentine day facts and stats along with some eye-catching business statistics:
Valentine’s Day Sales – A Dive into the Number Game (USA)
Here’s a list of some of the major Valentine’s day consumer insights that is simply interesting to know:
$21.8 billion – yes, that is what the Americans spent on Valentine’s Day 2021.
$4.1 billion – worth of jewelry was bought by US consumers on the eve of Valentine’s Day 2021.
$164.76 per person – The average amount spent on Valentine’s Day per person in 2021.
$106.22 – The average amount spent by women on Valentine’s Day.
$291.15 – The average amount spent by men on Valentine’s Day.
As per the recent Valentines day spending statistics, this year’s (2022) Valentine’s day spending is expected to reach $23.9 billion.
Average spent by Men and Women on V-day
In the US Valentine’s Day Scene – In Depth Analysis
Americans spent $27.4 billion on Valentine’s Dayin 2020 which was a huge surge, an increase of 32.36% to be apt, the $20.7 billion spent on the same in 2019 seemed like a smaller and outdated number, thanks to the growing need to display their affection among Americans. The numbers dipped a little to $21.8 bn in 2021.
An increase in YoY increase in average spending has become a trend over time, on top of a healthy increment in the spending pattern of an average person on the verge of Valentine’s Day. The statistics show that there has been a more than 43% increase in the spending pattern from 2017 to 2020, which is quite impressive.
52% of the total expenditure was on spouses and partners, a steady 9% decrease in the expenses as compared to the previous year. This reflects a paradigm shift in the mindset of the millennials who are gradually opening up to spending on family and friends as well.
1/4th of the US bought something for their beloved pets, which makes up for a very interesting stat and a welcome figure, to top everything else. $1.7 billion was spent on buying gifts for their furry friends, an all-time high in the history of Valentine’s day.
Americans and their love for jewelry and dinner dates were evident in the numbers themselves. $5.8 billion was spent on jewelry, which remained the go-to gifting choice for 21% of the consumers. Over one-third of the Americans who celebrated the day, preferred a dine-out with their loved ones.
Red roses and candies remained the medium to express love & gratitude for Americans who spent $2.3 billion on flowers and plants that make up a healthy 37% of the total consumers. More than 50% of the total consumers bought candies too, nearing 36 million pounds of chocolate for Valentine’s Day.
Men spent more to buy things for their partners and loved ones and it comes as a no-brainer since that has for long, been the case when we consider the numbers side by side. Men spent $26.05 billion on Valentine’s, compared to $23.92 billion spent by women, an 8.90% deficit which could’ve put them on par with men had they spent more.
Valentine’s Day Predictions 2022 – Pandemic, so what?
Valentine’s Day Predictions 2022
$23.9 billion – yes, you heard it right! 3 out of 4 people involved in this day feel that celebrating this day is important. If you think that they’re just saying for the sake of it. NRF predicts that despite everything that the pandemic has spoiled in the US, over 73% of the people think that celebrations are important, courtesy – of the COVID-19 pandemic. The previous year 2021 saw the Americans spending close to $21.8 bn even amidst the pandemic woes and this year it is expected to be somewhere around $23.9 bn, making it the second-highest year on record.
$11.7 billion – the significant other/spouse will be showered with appreciation, love, and gifts. The prime purpose for the celebrations, they make up more than 50% of the total expenditure.
$5.2 billion – people in the US will spend upon family members and friends which comes as a welcoming statistic because, at the end of the day, Americans do realize that the day is to show gratitude to anyone you love or admire.
$4.8 billion – to be spent on children, classmates, teachers, pets, co-workers, and others. The numbers are significant when we compare it to the previous year, which even if low, are important because the world is recovering from the wrath of COVID-19.
$175.41 is the expected average amount to be spent by the Americans on this Valentine’s day 2022. The average amount spent by a single person in America was $164.76 in 2021.
As of now, in the US – Valentine’s Day is a $27.4 billion industry, that is promising enough to grow YoY until the COVID-19 pandemic led to the global slowdown that will be reflected this year.
In Australia, AU$377 million is spent on presents, whereas New Zealanders spend $216 million on Valentine’s week shopping.
Almost 151 million greeting cards are exchanged on the V-Day.
Red roses, which are considered as the symbol of love and remain extremely popular during Valentine’s Day – are grown and sold in large numbers. In 2019, approximately 224 million roses were sold where a dozen of them were priced around $97.22, registering a 2.5% YoY increase.
Chocolates, cards, and jewelry remain the most sought-after gifts on Valentine’s Day.
From the Indian’s Point Of View – The Growing Significance
INR 30 Crore worth of rose stems were exported from India in 2019.
E-commerce transactions are expected to stay somewhere around 20-30 Crores for V-Day.
Women spent 35% more than men, a complete opposite when compared to the US.
Roses, chocolates, and cards remain popular, in India as well.
50% Y-o-Y growth registered in the starter premium segments when it comes to gifting.
INR 5k-10k is the average amount spent by Indians on the eve of Valentine’s Day.
Valentine’s day Facts & statistics
On a final note, Valentine’s day holds a special place for consumers and people across the globe owing to the roots of love, compassion, and empathy it vibes for. However, it holds even more importance from an economic point of view since a number of industries are directly or indirectly dependent upon this day for all of their business and revenues. The gifting industry is one of the main industries largely dependent upon this day for their operations and revenues. Despite the pandemic, the V-Day market promises to grow over time, irrespective of the temporary slowdown that we are witnessing nowadays.
The internet has massively broadened the possible space of careers. Most people haven’t figured this out yet. – Naval Ravikant
We are in the 21 century, the century of the internet and technology. It is such a unique time that it sometimes becomes unbelievable. Technology and the internet have joined hands and this amalgamation has made some very beautiful things happen in the world.
One of the magical things is that it has massively broadened career prospects. It has helped people earn a living with an “activity” that earlier was dismissed as a hobby or a mere interest activity.
Today, a person can be a YouTuber or a podcaster. One can be a content creator. This new career line confuses most of the people who have an old mindset but is relatively easy to understand. This is the line between content creation and community creation.
There is a new economy that is being built on the internet. That economy is known to us as a “Creator’s Economy”. If you don’t understand what that is and where it can go, or you doubt it as a good career option then this is the right article for you. We will discuss what a creator economy is and how it has become a buzzword. Then towards the end, we will see if this is a viable career option or not, read on to know more.
If you look back about five-six years from now and focus on the tech specs of your smartphone. Then it is highly probable that you will get shocked by the improvements that the mobile industry has shown. In the past decade, some 500 megabytes of RAM was considered good enough and now, the phone with the least specifications comes with 2 Gigabytes of RAM.
This is not just the case with your smartphone but the improvement in the technology sector is immense. It has not only gotten better but it has also gone a lot cheaper. This has enabled everyone to have a smartphone. At least a basic smartphone is in every hand if not the best flagship out there. Technology has penetrated to great depths in our society and it continues to penetrate more.
The next thing is the Internet. We define the internet as a connected network of computers over a large area. However, it is a result of technology development, so we chose to name it separately as it has its own journey. Earlier, the Internet was expensive and this feature of the internet allowed only some users to use it.
Over the years of the technological revolution, the internet got its much-needed boost. It became cheaper and cheaper up to the level when almost everyone could afford it. Now we see almost everyone has a data pack in his/her smartphone. This makes the world hyperconnected and results in some more interesting aspects of the world. Let us study one such aspect, the creator economy.
Content Creation and Content Creators
In this world where technology is a backbone, it has a lot of consequences. The internet has not just hyperconnected everyone, it is now working overtime to entertain us also. Think about what you do when you’re online?
You most probably are a person who scrolls social media, or you entertain yourself with YouTube, Netflix or you read a blog post about content creation. You could be someone who loves to watch gym videos or yoga tutorials. You might be interested in knowing everything about movies and reviews. You can be anyone, but you know why you are on the internet and for what purpose you’re online.
Almost everything that you see online or hear online is content. Creators spend a lot of time creating content and people view that content with full attention. This is what it is, things on the internet, usually filled with some information of use or sometimes filled with pure entertainment.
While there is no exact definition of the word content, it can be defined as something information-dense over the internet. That information can be educational, and it can even be for leisure and entertainment. There is not just one creator of content on the internet on a specific thing, there are multiple. All fighting a healthy competition of more and more engagement.
Today in 2022, two years into the pandemic, we are seeing something totally different. Our world economy or our country’s economy is maybe most probably down with the ongoing pandemic, but this economy is booming like anything. The economy we are talking about is “The Creator Economy”. This has seen a massive recent boom and it is forecasted to do well in the near future as well. Let us see what it is.
The Boost in Technology and the Rise of a New Economy – Creator Economy
The motive behind our preface about technology and internet globalisation is to set up a suitable land for our next topic. By now you must be wondering that the tech sector is booming and that boom is multiplied because of a global pandemic.
This is true and everyone is on their devices now, giving out more and more attention to the internet online world. When this is happening, creators will get more and more engagement which will turn their businesses more profitable. Well, this is true. The technology boost that was witnessed in the recent past has also massively boosted the creator business. As everyone is sitting online and people creating content online have more of an audience for themselves.
This has not just pumped up the creator game but it has also pumped up the whole career line. There are businesses around this sector. There is a whole ecosystem in place that is built around the content creation industry. Let us throw some light on that.
This is now when the word ‘Creator Economy’ gets in the picture. A creator is a person who creates something in the world. In this article, we will be talking about content creators. While there is no proper definition of the word content, it can be explained as a set of things like a video, photo, audio sort of media which travels freely over the internet.
Anyone who creates content over the internet is known as a content creator. What we now want to focus on, is the economy that is being built around content creation. Yes, there is a whole ecosystem in workings around the epicentre of content.
What is the Creator Economy?
The word ‘economy’ is something that means an ecosystem that is self-sustaining in producing and running itself. Here, the meaning is the same and all the dynamics are the same too. A creator economy includes all the businesses that are built around the game of content creation.
This is a relatively new field of commerce that has recently come to life and limelight. Now, there are businesses that are built specifically for one purpose and that is to help content creators get more engagement and attention, which can be turned into real cash.
The creator’s economy is at a genuine high time in its graph. All thanks to the accelerated and rapid scaling in the social media platforms and streaming services in the world. In the pandemic times, there can be seen a handsome increase in content demand from the public. This is a trend that can be capitalised on and has the potential to provide employment to a lot of creators.
When a content creator creates content, it has to reach the masses and add an effect on their lives. This is what gives them more and more engagement. It is mostly always about relatability and sometimes about originals and art forms. The more engagement and attention a content creator generate, the more and more brands try to take him/her on board for sponsorships and endorsements. This is the primary source of income that we can think of when we think about these influencers.
Source of Revenue for Creators
Not only does content creation help the creators get some reach and eventually some cash but it also helps brands too. Brands and marketing agencies can use the creator economy to become more relatable to the general public.
They can now look up to the content creators for inspiration, talent recruitments and their return on investments that will save/produce real cash. That was not possible earlier. Brands like Zomato and Bumble do that a lot, partnering with content moguls and sharing relatable public images and quirky memes. This is the new normal.
Social media has done a lot of growth in the recent past and for the last decade, it has turned to be marketers favourite destination to market products. During the covid 19 pandemic, this luxury item became more important and more essential for the survival of the economy. It was the pulse of the heart of the economy.
Everyone was locked inside their homes and businesses were forced to move to online mediums, they had to find ways to boost their products virtually and online, via the internet. thus. Content creators found their demand boom. For the general public, they began spending more time with their devices and thus became a large audience for creators. Apps such as TikTok took off, which now dominates other platforms with roughly a billion active users.
That is literally a new type of business that is emerging. You may have heard about B2B or B2C, but this creator economy works on a new model. The C2C model is also known as “Companies for creators”. These are companies that specifically focus on helping and catering to the content creators out there. They try to magnify creators’ revenue which helps them generate their revenue in return.
Income-generating Sources (Revenue streams) of Creators
Think about a YouTuber, the primary source of income for that is the subscribers base and the advertisement revenue that those subscribers generate. This is what most people suppose of a YouTube star, but it can be more than that.
In fact, not just a YouTube person, any of the creators on any of the global platforms can have more than just one source of income. Let us see some examples to make it more clear. Here we will read some common and some uncommon sources of income that an internet celebrity can have.
Content Subscribers
The most popular platform is YouTube, it works on a subscribers model. The more a person can make it engaging and the more he/she can have a subscriber base, the better the income. This is the primary source on this platform.
Twitter recently started its paid tweets feature in their famous platform. That is called super follows, it allows creators on the internet to create a subscribing audience that pays to watch their exclusive tweets.
Twitter Super Follow
It can range from 2.99$ to specified by Twitter. This source of income that uses the algorithm and the platform as the epicentre is the most famous and known source of income.
Exclusive Stuff
Once a creator is an established creator, he can add more exclusivity to its content. Youtube allows that, by allowing creators to add a “Join” button to the channel. Viewers can access those exclusive content by paying a minimal monthly fee. This is not just limited to this feature of exclusivity, this was just the beginning, it can expand to more types.
YouTube Join Button
A content creator can create merchandise that is exclusive to his/her style. In this world of hyper technology, established creators can even launch their NFTs. A famous internet creator Logan Paul reported some abnormal gains in the sale of NFTs.
He reported that the NFT he launched was sold for 200 Ethereum. That is an insane amount of money and obviously some supernormal returns. It is mind-blowing to see how much he can earn with the 2.5+ million dollars that he has invested in NFTs.
He also owns a clothing brand and is trying to set up a sports drinks business. There can be no limit to the number of exclusive items a creator can launch and market.
Specific Information via Courses
Yes, you read it right and this point validates your thoughts. Almost every content creator can create a course online and spread it out with his/her audience and for the world out there. The course can be some specific and distinguished information or it can be his/her learnings in the content game.
The most famous example right now would be Ankur Warikoo, the entrepreneur who rose to fame with his educational and motivational YouTube videos. YouTube is just one sort of income stream, he also sells some courses online.
The courses are some specific knowledge that he has gathered in his life, some entrepreneurial skills and some public speaking lessons. Raj Shamani can be another example who sells courses apart from his content creation game. The point reveals itself that in this modern world if you have some hungry audience, you can have multiple streams of revenue.
Fan Interactions and Events
Once you are a regular surfer of the content waves, it is now the time to jump to another level. If you have an audience that loves you and is really fond of you, then this can be one more source of revenue.
Many online creators organise events that are funded by their lovers (Audience). There are many circumstances when some organisation hosts an event and pays the creator to join it. These concerts or fan interactions can also become a revenue stream for these creators. However, the pandemic did add a lot of restrictions to this but they are always available with little tweaks here and there.
Merchandise
Merchandise is something that we all have seen at some or other point in time. They are some products that creators release for people to buy. They can be anything with the creator’s unique tagline or a symbol or anything that is uniquely identified. Famous creators often release them for their fans.
Logan Paul is the owner of “Maverick” clothing. Bhuvan Bam is the creator behind the Youthiyapa merchandise. Almost every creator is releasing his/her own merchandise. They can have mugs, phone covers, and more added to their definition.
Bhuvan Bam Merchandise
These are some of the most uncommon revenue streams that content creators can have. Not just limited to these, there can be more options than just these, depending on the audience relation and type of audience that the creator has. Like a tour and travel blogger will get some sponsorships of places and cuisines. Some vloggers can get sponsorships for tourism spots and travel destinations. The line between all these domains are very little and they often diffuse into each other.
According to Bloomberg’s Lucas Shaw, “Creators now make so much money from social media that crossing over isn’t the be-all and end-all. They can make millions of dollars in advertising on YouTube and sponsorships on Instagram. They leverage their audience to start their own clothing or make-up line. And unlike many other creative pursuits, the creator economy has proven pandemic-proof.” Thus, there is a huge incentive that is there in this line of career.
You have to be able to build some base audience first and then you can think of some real cash. There is always a first-mover advantage in terms of engagement and reward in views. It is a test that someone has to pass before becoming a celebrity. Yes, celebrity is a real word in the urban dictionary.
It can easily be said that content is the most profitable product of the 21st century. Not just that, but it has grown much. Now, there is a whole industry that works around content. There is a whole ecosystem in place which is trying to help people get more attention sell more and eventually generate more cash. The C2C commerce, Companies for creators.
There are over 6 billion people who use a smartphone device, according to Statista, and almost 4 billion of them are active on a social media platform. This is easy to say that everyone is on their phone consuming content, but few are the people who are creating content. However, you might find them in thousands in numbers but again India has about 130 crores of population. So why is content winning you ask?
It is super accessible. You install a social media app on your phone. Technology is cheap and great, making an account with one email is easy. Sign up and you can access a lot of data information and content. A report said that 30 thousand hours of content is uploaded every hour. It is not just easy for the audience to watch cool things but it is also easy to hop on the content creation ride.
There are many possibilities. Many many possibilities. Those which we discussed in this article are probably just the tip of the iceberg. Never in the history of time, things like these were possible.
You learn a thing, or you find something that is natural to you, you go online, create an account and post content, and you grow. Once you are consistent enough and successful in building an audience, there can be endless possibilities to grow more from that stage. Marginal growth becomes easy and multidimensional.
Money – it is where the money is. Content creation is where the big money lies. It is the place where everyone lives, the online world. That online world is not expected to close/shut down in the near future. That is why it has a lot of potential to earn money.
Another reason why content is winning is that creators are creating not just content, they are creating ‘Asymmetric information’. There are many content creators who know branding and marketing way better than brands and marketers. They know the code of conduct in an online marketplace and that is why brands love to collaborate with them. This is sometimes the very basis of paid partnerships in the online world.
Is Content Creation a Viable Career?
Yes and No. There are still high doubts about content creation being a viable and stable career. When we talk about a career we generally mean something related to two factors. We mostly want stability and high reward. There is stability in the career but it comes with a different definition. There exists high rewards too in this career but only after some tests.
First of all, not everyone can be a content creator. Someone has to be a viewer and follower. It has to be noted carefully. If you’re someone who is just starting out, then you would be looking at statistics a lot. They have to rise if you want more engagement/subscribers/likes/shares. You have to create content that the audience would love.
To be super honest, that is not as easy as it looks from a distance. Instagram Stars like Kusha Kapila, Dolly Singh, Ankush Bahuguna, and others do that every day. It can seem easy from a distance but creativity is not as easy as it sounds and looks. You have to find some hook, on which you can build up. That hook will grab people’s attention. Not to mention that there is always the first-mover advantage.
Secondly, even if you create content, building a community is hard. You have to be super specific in your content and whatever you show and speak online. The likes and shares would look easy but they are hard-earned. So, if you are starting out, try to be clear with your approach.
Try to enhance your content every day and just keep doing it until something big happens, even after that, don’t stop. It is often called luck. Some people call someone lucky to be at some specific place at a specific time. That is not entirely true, and hard work matters a lot.
Another thing that a lot of creators have mentioned countless times is the “Fun” part of creating. Most of them have mentioned that it is about individual preferences. If you’re having fun creating something for the world then you should go ahead and dive into the content game. Metrics like the number of subscribers, likes, shares will come after you have mastered your area. It is always the process and only after a while you do find a happy destination in your career as a content creator.
The recent surge in the pandemic has not affected this economy and it is growing at an even better rate. The Creator’s economy’s adaptability and resilience that it showed during the pandemic added high hopes from this sector. As individuals, now creators can have multiple income streams and that too with growing influences in the market.
Now brands from all over the world can be more and more influenced with the help of these content creators. Instead of investing millions of dollars in advertisements and placing them during prime time television shows, they can use creators for brand placements.
This can help brands with getting a ready-made audience for their products or services. This makes marketing easy and product placements even better.
Social media has been a very crucial part of marketing over the past 10 years. With the advancements in technology and diversification in devices, we are seeing a massive boom in online marketing. All these acts and the current pandemic has boosted the audience that creators have online. Which has in effect turned the content creation into a well profitable game.
In the history of the internet, this is probably the best time one can be a content creator. Moreover, there is now a new online economy solely dedicated to this domain. When everyone is on their devices and giving out free attention to the internet, it is probably a tight time to turn your hobby into a full-time career.
The creator economy, often abbreviated as something that can turn your side hustle into your main hustle is booming. But can everyone be a content creator? The answer is very subjective Yes and No. You have to let go of the skin of the game.
You have to keep upgrading your tools and techniques to get more attention. More importantly, you have to enjoy the process, because if you enjoy creating, then most probably the audience will love interacting with your content. It is a double-edged sword and both the edges are sharp.
FAQ
What is the creator economy worth?
The industry of content creators, content curators, and community builders is worth nearly $20 billion dollars.
How many people are in the creator economy?
As of 2020, there are 50 million global content creators.
What is an economic creator?
Any content creator or community builder who uses platforms like TikTok, Instagram, Twitch, YouTube etc to monetize their fanbase is termed creator economy.
