When i was a kid we used to eagerly wait for Diwali. The reason being, Diwali was the time for annual shopping. For the whole year, whenever we used to ask for any big ticket purchase, the parents used to reply “We will buy at Diwali” :) Even today up to 40% of the annual sale of consumer goods/auto companies is achieved during the Diwali shopping season. In other words, Diwali is the annual shopping season for India :)
From my childhood days, i was always curious to know why only Diwali is the shopping season. I asked my parents, grandparents, teachers, friends etc but unfortunately no one was able to answer the same. The standard reply was it is the biggest festival in Indian and auspicious for shopping :). My curiosity led me to read so many books and news articles (There was NO INTERNET during those days). Finally, i linked all the information pieces together and find out the answer. As Diwali shopping season is approaching, therefore, i thought why not share this interesting piece of information with the readers. To understand the same, we should first check “how and when the salary was disbursed in past”
How was Salary disbursed in Past?
These days we receive a salary for calendar month i.e. on 1st of every month employees receive a salary in their bank account. The salary is fixed for the month say Rs 1 Lac for the calendar month irrespective of no of days in the month. In other words, you get a fixed salary for 28/29/30/31 days month.
It was not the case in past, You will be surprised to know that salary was offered and paid on weekly basis. Assuming we are following the same system today then instead of Rs 1 Lac per month, the salary offered will say Rs 25,000 per week or lesser than that.
In those days, the salary disbursement was a big hassle for companies/factories. The reason being
(a) Large workforce: Most of the employees were blue collar workers because of large scale manual work.
(b) Time to disburse the Salary: For a company/factory with 2000 employees it was an almost full day job. There was no online transfer and workers did not have bank accounts. The entire disbursement was manual and in cash with a lot of paperwork. From management’s perspective, it was a loss of productivity and operational hassle.
Moreover, from a personal finance perspective, the workers were not able to manage their finances well. The reason being, household expenses were not uniform for each week. Today we are not able to manage our finances month wise as expenses are not uniformly distributed across months. Now imagine how difficult it was to manage the expenses/finances on a weekly basis. Therefore, in past, it was very common to avail advance or loan against salary for a financial emergency.
During one of the industry meet in Mumbai, the factory owners proposed to disburse salary on monthly basis. It was not that easy task as approval of worker unions was required. As the factory workers were also facing financial problems because of weekly disbursement. Therefore, everyone mutually agreed to shift from weekly to a monthly salary.
Now the biggest bone of contention was to FIX the monthly salary. The factory management proposed 4 weeks salary to be disbursed to workers as monthly salary but it was a financial loss to workers. In other words, they will get 28 days salary for a month. To fix this anomaly, the management proposed the concept of ANNUAL DIWALI BONUS to workers and employees.
The Concept of Diwali Bonus
The negotiators calculated that if workers agree for 4 weeks salary as a monthly salary then they will lose out on net 27 days salary in a year. To compensate this loss, the factory management proposed to pay an annual bonus equivalent to one month’s salary at the time of Diwali. Thus the concept of Diwali Bonus came into the picture.
Another reason for factory management to offer Diwali bonus was that traditionally the Indian Businesses start their new accounting year from Diwali. Though official accounting year is from 1st April to 31st Mar. Therefore during those times it made a lot of sense to offer Diwali Bonus to workers before closing the book of accounts.
In other words, workers agree for 4 weeks salary as a monthly salary irrespective of no of days in the month. In the lieu of that, factory management will pay an Annual Bonus equivalent to 1-month salary during Diwali.
Why is Diwali considered as annual shopping season in India?
The fine tuning of salary structure resulted in liquidity in the hands of employees and workers during Diwali. Thanks to Diwali Bonus. During those days, it was huge money to spend. Therefore, people started shopping or spending more during Diwali season. The marketing department of the consumer good companies fine tune their strategy depending on the liquidity in the hands of consumers. As we saw recently that after the implementation of 7th pay commission, the banks, consumer good companies, auto majors etc rolled out special offers for govt employee.
Thus, once the companies/factories adopted the Diwali Bonus concept, the marketers started projecting Diwali as “Annual Shopping Season” for consumers. The basic objective was to make customer spend more during the Diwali season as they had money in hand during that time.
Gradually, the concept of Diwali Bonus vanished. The Diwali bonus is replaced with gifts. Though i observed that some of the traditional Indian business houses still pay annual Diwali Bonus mostly to blue-collar employees. But the marketers did their job well in past. It is now deep rooted in the psychology of the customer that Diwali is annual shopping season. Unfortunately, not many people are aware WHY? :)
In the current scenario, Annual Bonus is fine tuned according to Financial Year or Calendar Year (Some MNC’s follow CY as their FY). Normally employees receive an annual bonus between April to August or September in some cases. In my post, How to Spend Your Annual Performance Bonus? I shared how to spend annual performance bonus judiciously. You should avoid impulsive buying or shopping after you receive an annual performance bonus.
Now the million dollar question is that as a customer, should you follow the traditional approach and wait for annual shopping season i.e. Diwali. You can get discounts and deals during that time. But is it true? The unanswered question is when is the best time for shopping? I will answer these questions in my next post, When is the best time to shop to get discounts and great deals?.
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