How festivals may shape the economy

Updated on Sep 19, 2022 07:18 PM IST

In India, the September-November festive season has a decisive impact on the economy because it drives up consumption and acts as a bellwether for the year ahead

If the festival stimulus is strong, analysts tend to be more optimistic about the year ahead. If not, sales and consumption forecasts are revised downward (SUNIL GHOSH/HT PHOTO) PREMIUM
If the festival stimulus is strong, analysts tend to be more optimistic about the year ahead. If not, sales and consumption forecasts are revised downward (SUNIL GHOSH/HT PHOTO)

When we think of an economic stimulus, we usually think of increased public spending or monetary easing. But there’s another kind of stimulus that is not announced as one: Religious festivals. Most festivals involve donations, gift-giving, and conspicuous consumption, forcing people to part with some of their savings.

In India, the consumption trends in the September-November period — when festivals occur across the country — are tracked with great interest by analysts and economists. If the festival stimulus is strong, analysts tend to be more optimistic about the year ahead. If not, sales and consumption forecasts are revised downward.

In general, religious festivals tend to boost consumption. Yet, their impact on different income classes is unequal. In most festivals, some amount of rich-to-poor transfers do take place through community feasts and other events. Yet, the poor often end up spending a disproportionately higher amount of their money in such festivals.

One reason why the poor are willing to spend a greater share of their meagre savings on festivals has to do with boredom. In their 2011 book, Poor Economics, the Nobel-winning economists Abhijit Banerjee and Esther Duflo use survey data from 18 countries to show that in regions where poor households lack a radio or a television set, they tend to spend a significant chunk of their household budget on festivals. Festivals offer the poor a break from routine drudgery, allowing them to indulge in socially sanctioned revelry.

Festivals also tend to lower the barriers in inter-mingling across castes and class groups, helping build social capital. When Durga Puja was relaunched as a community festival in 19th century Bengal (after domesticating a war-goddess), Bengali nationalists ensured that people of all castes were welcome in Puja pandals.

The historian Tithi Bhattacharya wrote in a 2007 research paper that deviations from such open-door policies were frowned upon, and rebuked in the newspapers of the day. Nationalists were able to use the festival to galvanise opinion against the British Raj only after it created a sense of community among the locals.

The local neighbourhood committees that organise the festival came to accumulate extraordinary social capital over time. When the “godless” communists stormed to power in the state, they made sure that the reins of such committees remained in the hands of party cadres and fellow-travellers.

It is worth noting that festivals may not always enhance social capital. Across the country, religious festivals are among the leading causes of Hindu-Muslim riots, the economist Sriya Iyer wrote in her 2018 book, The Economics of Religion in India. Iyer argues that a religion is like a “club good” — it provides unfettered entry to members — but it takes care to exclude non-members. This exclusionary feature has been exploited by several political entrepreneurs to raise their own political capital, while diminishing the country’s social capital.

There is another reason why economists sometimes frown upon religious festivals. That has to do with the institution of gift-giving. In a famous experiment in 1993, the American economist Joel Waldfogel asked his students at Yale University to place a monetary value on the (non-monetary) gifts they had received during Christmas.

When Waldfogel compared these valuations with the market prices of the gifts, he found that most students had under-estimated the value of these gifts. Waldfogel argued that the students placed low value on such gifts because they didn’t really need them. Had they been given cash, they would have spent it on things they liked. So gift-giving leads to “losses” for both the gift-giver (since she fails to earn the true appreciation of the recipient, who undervalues the gift) and the recipient (who is left with something she doesn’t value much), Waldfogel argued. He estimated that gift-giving during Christmas resulted in a net loss (or deadweight loss to be precise) of anywhere between $4-$13 billion each year in the United States.

Waldfogel’s findings came under heavy fire from other social scientists, and even some economists, who argued that he failed to take into account the social capital gift-givers were generating. Besides, his sample was composed only of economics undergraduates, who had been indoctrinated to value cash above all else, the critics alleged.

Despite these criticisms, Waldfogel’s findings still resonated with economists who found gift-giving something of a puzzle. In a partial resolution of this puzzle, some economists have argued that gifts are valued when they suggest that the giver has spent some time picking one.

After all, the norm of gift-giving began in the pre-industrial age, when hand-crafted gifts were prepared over weeks or months. The notion that one must spend some time — at least in selecting — if not making a gift, continues to hold force in the modern world. Since money is an imperfect substitute for time, spending money doesn’t show the same regard for someone as spending time.

It is worth keeping in mind that traditions, even religious ones, are malleable. Just as the power of advertising made people accept factory-made gifts instead of hand-crafted ones, it is possible that cash-like items (such as digital gift vouchers accompanied by a personalised note) may well find wide acceptance in future. Even students of economics will find little to complain about such gifts.

Pramit Bhattacharya is a Chennai-based journalistThe views expressed are personal

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