An old proverb in India goes, "Barah mahine, terah parv," which translates to "twelve months, thirteen festivals." This expression sums up Indian life, which is full with festivities throughout the year, well. The overwhelming desire to spend during festivals is an economic phenomenon that goes beyond the colourful customs and feasts. In India, festivities seem to happen every month, whereas Western shops get ready for occasions like Christmas and Black Friday. Similar to a stock market at its busiest, markets are a flurry of activity around festivals like as Diwali, Dussehra, Eid, or Akshaya Tritiya, a day that is considered auspicious for purchasing gold. India's festival economy is distinct because the causes of this frequent spike in expenditure are firmly anchored in behavioural patterns, cultural values, and traditional economic theories.
In India's past, festivals have been associated with religious celebrations and economic milestones. Harvest periods were designated in an agricultural civilisation as a time to savour the results of a year's labour and allocate resources. The festival spirit changed but retained its essential components as India's economy transitioned from an agrarian to an urban one. Even if the customary "harvest" is now a Diwali bonus rather than a bounty crop, people still want to celebrate and spend money. According to conventional economic theory, consumers maximise their utility by making logical judgements. The Indian festival phenomenon, however, casts doubt on this notion. Families frequently go over their spending limits, purchasing new clothing, technology, and even cars, driven by the idea of "shubh muhurat," which is an auspicious season that is perfect for big expenditures. Spending in this context involves more than just meeting necessities; it also involves making purchases at the "right" time, even if doing so means going over budget or taking on debt.
One answer can be found in Thorstein Veblen's Theory of Conspicuous Consumption. Veblen argued that in addition to their practical value, people purchase high-status goods for their social position. During celebrations, Indian families have the perfect opportunity to flaunt their wealth. Reasonable budgeting is usually overshadowed by the need to flaunt money and status through pricey jewellery, décor, or clothing. We keep returning to the concept of "mental accounting," which was made popular by Professor Thaler, to explain the phenomenon. Festival money is not subject to the same prudence that is typically applied to everyday spending because it is conceptually distinct from other savings. Families are more at ease spending excessively from this "festive fund," defending it as a customary cultural expenditure rather than a careless financial choice.
A spike in gold purchases on Dhanteras, the first day of Diwali, is indicative of this behaviour. Despite the fact that gold prices frequently increase over this period, customers nevertheless swarm jewellery stores, apparently oblivious to the increased pricing. Although this behaviour appears to be less than ideal from a rational perspective, it is culturally acceptable, despite its dubious financial implications, due to mental accounting and "loss aversion"—the desire to avoid missing out on an auspicious purchase. This spending is further amplified by social proof. In India, festivals are social gatherings, and behavioural science demonstrates that other people have a significant impact on people's behaviour. The "bandwagon effect" takes over when everyone is purchasing, decorating, and celebrating, causing people to adopt the norm. Families are compelled to spend even when it puts a burden on their finances because to the societal pressure to match their neighbours' celebration levels.
These behavioural triggers are well known to marketers, who take advantage of them during holiday seasons. Celebrity-endorsed advertisements for everything from smartphones to candy with holiday themes proliferate. Using the "scarcity principle," limited-time promotions and "festival editions" entice customers to act fast to risk missing out. "Anchoring"—the propensity to place a lot of weight on preliminary data—also contributes. Even when the "discounted" price is not appreciably lower, festival discounts set customer expectations by making regular pricing appear higher in comparison.
The government and financial institutions have discovered ways to redirect this fervour into more sustainable financial behaviour after identifying the behavioural factors that drive seasonal spending. During festivals, special festive fixed deposits or gold bonds are widely advertised, encouraging individuals to allocate a portion of their expenditures to investments or savings. These financial products serve as commitment tools, enabling users to safeguard their funds while still engaging in holiday spending.
What can we learn about human behaviour from this? It demonstrates that economics encompasses culture and identity in addition to rational agents. Budgets are not the only factors that influence financial decisions; behavioural biases, cultural norms, and societal expectations also play a role. Festivals in India magnify these dynamics, creating a financial pattern that confuses traditional economists but makes sense to behavioural economists.
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