--By New Biz Bureau

With October already here, the monsoon clouds are changing into clear blue Dashain skies, and autumn is in full bloom. The season brings with it a lot of hope and enthusiasm in our festival-driven economy. This is the season in which consumers have extra cash, farmers harvest their produce and those employed in the formal sector get a festival bonus. The increased spending capacity of the consumers means good business for the shops. With Dashain once again around the corner, Nepalis are looking forward to many days of celebrations.

A Festival-driven Economy
The Nepali calendar is marked by many festivals. From Lhosar to Teej, from Dashain/Tihar and Chhat to Maghi, festivals come in quick succession almost throughout the year. During these celebrations there is always a spike in spending and consumption.  But the most spending happens over the major festive season of Dashain and Tihar.

And in urban areas, the festive season starts ahead of Dashain and continues till the New Year. This is the time when traders and businessmen make different offers to attract consumers to tap into the increased disposable income of the consumers. During the past, the general public in Nepal used to wait till Dashain to buy new clothes and to eat meat for two-three days. But now people do not wait for Dashain to buy new clothes or to eat meat, particularly in the urban areas These days, they wait for Dashain to buy kitchen appliances, and vehicles, which have become a necessity for city life. 

Saurav Jyoti, former president of Nepal Automobiles Dealers’ Association, says more than 50 per cent of the cars that are sold in Nepal in a year are sold during the festival season. “As ours is a festival- driven economy, a lot of buying happens in this season. I can tell you, the festive season runs for almost four months from Dashain and Tihar to the New Year.”

Purushottam Bhandari, national sales head of CG Electronics, has had a similar experience. “If we look at the trend, the purchasing capacity of the people increases during Dashain. Many people get Dashain allowance, and people want to buy products of hi-range,” he adds. According to Bhandari, the sales of refrigerators and TVs increase during the festive season.

But the situation is a bit different for the tourism business. The number of domestic tourists is insignificant compared to international ones. Tourism entrepreneurs say that although the number of international visitors to Nepal increases during Dashain, the increment cannot be attributed to the festival. DB Limbu, President of Nepal Association of Tour and Travelling Agents (NATTA), says international tourists are more interested in festivals that involve a large gathering of people (such as jatras and chariot processions). 

The global experience
Globally, it has been seen that during the festival season, buying and selling increase and the economy itself is stimulated. “But the difference is that in developed economies, people have the capacity to spend, and if they take loans, they are able to pay back,” says economist Dr Madan Kumar Dahal. In November last year, increased retail spending in the US was enough for economists to suggest that the US was heading for a recovery.

But in an under-developed economy like Nepal, the people do not have the capacity to spend, and even if they borrow money to spend during the festival, they are unable to pay it back. “This has resulted in mounting debt,” he explains.

The Economics of Festivals
The recently released Fifth Nepal Household Survey shows that an average household spends more than 3/4th of its income on consumption. It also shows that there has only been a nominal rise in the income of households in Nepal between 2006 (the last time the survey was conducted), and 2015. According to the survey, of the Rs 30,121 that an average Nepali household earns, it spends Rs 25,928 (86%) on consumption, saving only 14% of the income. The 2006 data had shown that an average household earned Rs 27,391, but it saved Rs 12,261 (45% of its income).  

It has been observed that the people are willing to spend more during the festive season as traditionally, Dashain is the time to buy new clothes, eat good food, and enjoy with family. Thus, the festivities increase economic activities. There is more selling and buying and this obviously has an effect on the economy. It would be a conservative estimate to say that an average household would at least spend 50 per cent more money than normal during Dashain. This means that on average one household spends an extra Rs 12,500 (around Rs 67 billion in total as the survey has put the number of households at 5.4 million) during Dashain.  The amount is equivalent to around 9 per cent of Nepal’s GDP.

Dahal says, “During Dashain, the households do what the state does all round the year — borrow money to meet its needs.” Rising inflation and stagnation of income forces people to borrow money from both formal and informal sources to uphold the tradition. “It is often the middle class, which is hit by inflation the most, that feels the burden to continue traditions,” says Dahal.

The latest annual macroeconomic data released by Nepal Rastra Bank shows that Nepalis spend more than 90 per cent of the GDP on consumption. Only around 10 percent of the GDP is being saved for future investment. To sustain an investment to GDP ratio (as big as 25%) the government needs to resort to borrowing money from national and international sources. But the 25% translates to just 3-4% growth in the GDP, and does not significantly increase the income of the households. “Our development has become a function of loan,” says Dahal. 

Long term solution to ‘festival woes’
Dahal says the festival time should serve as a reminder to policy makers to give priority to increase the income of households.  During the past few years, household income has stagnated and inflation has taken away any increment in income.

He says the government should invest in infrastructure, create more jobs and increase the income of households so that people have the means to celebrate the festivals as it is meant to be celebrated without having to be neck-deep in debt.