Market failure in festival economyThe state's planning needs to look for vibrancy in the economy beyond the festival glitter.
A positive correlation between festivals and enhanced economic activities is almost axiomatically accepted as universal reality. It appears stronger among festivals that fall in the predictable annual calendar of culture and tradition. For example, Christmas and New Year in countries that follow the Gregorian calendar, the traditional lunar new year celebration in China, and a combo of Navaratri (Dussera), Dipawali and Chhath in South Asia mark the most prominent festive seasons.
Apart from their cultural and social importance, these festivals are also significant economic events. Modern states invariably coincide their national holidays with these festivals, often with extra perks and allowances to the employees in the economy. Producers, suppliers and traders of goods and services eye higher profits from these festival sales. The disposable income of consumers generally goes up as consumer psychology on festival spending is decidedly bullish as it is linked to cultural or religious gratification too.
Lately, several studies have reinforced this traditionally experienced economic phenomenon. A Michigan State University study entitled "Economic Development Potential of Festivals, Arts and Culture" has found two broad types of interventions by festivals in the economy. One is an intervention that sustains growth incrementally over a long period of time; the other is to introduce short bursts of high economic activity that have long-term ripple effects.
Nepal's festival economy
Nepal celebrates Dashain and Tihar (Navaratri-Vijaya Dashami and Dipawali) as her national festival. Although comprehensive systematic data is difficult to obtain, unlike many countries, Nepal's economic activities are highly concentrated during these two months of September and October. Some economists estimate that 40 to 70 percent of market activities take place around Dashain, Tihar and Chhath alone.
Consumers are thought to save on their consumption during the other 10 months to spend during these festivals. Suppliers aim to capitalise on the potential increase in demand and makeup in their tardy earnings in other seasons of the year. Demand for durables and capital goods, not only fast moving consumer goods or perishable goods, also rises during the festival season, except perhaps for construction materials.
Traditionally, demand for jewellery, washing machines and refrigerators, kitchenware and interior design materials increases substantially. Almost 70 percent of automobile sales are (reportedly) closed in the periphery of these festivals alone. As Nepal is an import-dependent economy, the surge in imports in the months right before the festival also indicates our festival-centric consumption of mainly meat, sweets and fashion products, among others. Some services like public transport (by road) that are owned and operated by the private sector in Nepal survive throughout the year from the earnings during Dashain and Tihar.
Sellers offer discounts and hope to compensate for the lowered profit margins by an increase in the sales volume. Such offers spread across a range of products from vehicles to home appliances. The tourism industry has also started to announce discounted tour and accommodation packages. However, the culture of domestic tourism during festive seasons is relatively new in the Nepali entertainment and adventure culture, albeit it is taking root gradually.
The festival economy is not always rosy. Instances of artificial shortages and price hikes, hoarding and black marketing proportionately rise with the growing economic transactions during festivals. Hasty buying decisions of consumers often serve as an incentive to market rogues to sell lower quality goods at higher prices. This leads to the case of market failure. The free market economy's price fairness and consumer rights as desirable properties are blatantly compromised where an effective regulatory intervention becomes inevitable.
Nepal is a classic case of repeated market failures, particularly during the festival seasons. Currently, a shortage of sugar and price rise in everyday goods like edible oil and food grain is widely reported. Even public monopolies have increased the price of dairy and petroleum products right before Dashain.
Private sector players are often alleged to be involved in hoarding and cartelling during high-demand seasons. Institutional intentions, capacity and reach of public oversight mechanisms like the Department of Commerce, Supplies and Consumer Protection are nearly non-existent or limited to a few urban centres. No regulatory mechanisms exist even to examine whether sellers' coupon or discount offers are not actually intended to fool and cheat consumers.
The government runs fair price shops in minimal numbers compared to their demand, and they are operated only in urban centres while price distortion is more acute and rampant in far-flung areas. In this festival season, too, the government opened only 43 outlets in 39 districts. They are not only in short supply but have also proven to be ineffective. The fundamental objective of operating such shops was never to ensure better supplies beyond tokenism and populism.
In the service sector, reports of commuters being forced to pay higher fares for long distance road travel are widespread in media. Road safety to match the increased traffic on the highways has become another big concern. But the government apparatus has remained chronically inefficient to tackle hordes of such issues that ruin the festival mood of many.
Nevertheless, after almost two years of gloom, a relative recess in the spread of Covid-19 has largely enthused the populace to celebrate Dashain this year. The markets look crowded, and the movement of people compared to last year has increased substantially. These festivals also make the masses travel great distances within the country and also from abroad. This, of course, gives a much needed fillip to the economy. But the attendant risk is that these festivities may again prove to be additional causes of further spread of the virus due to people's negligence in following health safety protocols.
In the case of Nepal, the larger question, whether the economic activities concentrated during festival months instead of being spread throughout the year would contribute to sustained growth in the economy, is still inconclusive. The state's economic planning certainly needs to look for vibrancy in the economy beyond the festival glitter.