Diwali light, and darkness

As the Diwali sales are soaring, India may hope for a near pre-pandemic lighting up for its biggest festival. Festivals act as magic wands for the respective economies through the buying and selling of goods and services all over the world, indeed. Even a village fair is often the source of almost the yearly income of many related people. And, understandably, the pandemic-hit economies are trying to come out of the shadow of the virus through their festivals—Rio Carnival to Mardi Gras to Hanami to Durga Puja—all over the world.

But, it is not quite easy. After a gap of a year, the Rio Carnival was staged with trimmed festivity in 2022, which generated 62% of less income than that of 2019. After a two-year hiatus, Munich’s Oktoberfest was back in 2022, but it drew an underwhelming 5.7 million people, which is about 10% less than the pre-pandemic figure of 6.3 million in 2019.

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Certainly, India also envisages a rejuvenation of its pandemic-hit economy in this festival season. And, apparently, there are signs that any such hope may meet more success in this country. According to some estimates, the just-concluded Durga Puja in Bengal generated Rs 50,000 crore, which is a significantly higher figure from the British Council’s estimate of Rs 32,377 crore in 2019—the last Puja before the pandemic.

There is immense importance of Diwali in modern India’s economy, we know. Be it a year with a natural calamity, a high inflation rate, a war in Europe, or involving the shock of the once-in-a-century pandemic, houses are re-painted, gifts and household goods are purchased, and mohallas are flooded with sparkling lights and aroma of sweets during the Diwali days. And the economy gets rejuvenated. Diwali, and its preceding weeks, are traditionally a period of consumption and investment in India, and also a boom in tourism due to the holidays. Diwali kicks off the wedding season, and much of the wedding-related shopping also takes place during Diwali. In fact, Diwali sales can be seen as a barometer of the vitality of the business, and also the Indian economy, to some extent. The intensity of the Diwali lighting is a reflection of the economic mood of the country.

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During the last two-and-half years, the pandemic and related restrictions have acted as a negative catalyst for the lives and lifestyles of the people, as well as the associated economy. But, what about Diwali sales these years? As per data from the Confederation of All India Traders (CAIT), Diwali sales in the Covid-era were quite encouraging, indeed, surprisingly so. Diwali sales in 2020 were up 10.8%, indicating good business prospects for small businesses. As per CAIT data, Diwali festive sales crossed `1.25 trillion in 2021, helping retailers log decade-high sales. Well, as the virus is under control this year, is the Diwali prospect brighter than in the recent past? Can the festival of lights light up the pandemic-hit Indian economy?

Well, the answer may be ‘yes’ and ‘no’ together. As many experts believe, Diwali in the pandemic-hit country may boost the quintessential spenders like FMCG, consumer durables, and fintech, but traditional big spenders like auto and edtech may see a gloomier festive season. But, personally, I’m quite concerned about the post-pandemic Diwali economy that would exhibit some specific patterns of the spenders. As in many parts of the world, the nature of the post-Covid economic recovery is mostly ‘K’-shaped, as argued by different economists with the aid of various sorts of data. The poor are becoming poorer while the rich are getting richer. Real rural wages, which can be obtained by deflating nominal real wages by the CPI rural, are a good proxy for the incomes of unskilled workers in both rural and urban labour markets. As the real rural wages have been mostly contracting between November 2021 to June 2022, the inflation hovering around 10-11%, and given Covid must have impacted the income of millions, low-income earners are finding it difficult to regain their pre-pandemic purchasing power. The income inequality would induce demand inequality as well, and it would also result in wide variation in Diwali spending of people belonging to the two hands of ‘K’.

While millions are coping with either job loss or wage cuts, not everybody did suffer economically due to the pandemic. And those who remained well-off during the pandemic, may spend handsomely during Diwali. This would certainly help the economy. While the global economy is facing a slowdown, experts believe the Indian festive market won’t face a significant setback due to the positive consumer sentiment. Bengal’s Durga Puja earlier this month is an example.

Thus, in an increasingly unequal world, brisker Diwali sales wouldn’t imply an overall better economic climate in the country. Although a better Diwali economy this year than that of last year—mostly riding on the purchases of the people in the upper hand of ‘K’—might make the economy look attractive; that also might boost the economy of the people lying in the lower hand of ‘K’ a bit, but it might be a sad reflection of the poor money income of the average people and ever-increasing inequality. A ‘K’-shaped consumption pattern, with its roots in rising inequality, not only leads to a riskier, non-diversified growth but also ignites uneven flames of the diyas. Happy Diwali, in any case!

(The author is Professor of statistics at the Indian Statistical Institute, Kolkata)