Why doesn’t the government interfere to lower other prices apart from air fares?

My confidence index on Indian government’s capabilities are dipping with each passing day. Each time I think a low has reached and may be things improve from now on, we have something more to offer. Despite a huge interest in Indian economy, I continue to maintain we are not assessing the risks of Indian Political System (see this as well).

Financial markets are one way to correct these issues as market participants start demanding for reforms. But nothing of this sort happens. There is a knee jerk reaction when one of the many scams breaks out and then again it starts to move up tracking India shining story. Markets must remember India will shine only when the government policies keep up to the pace. And central government is still bearable when it comes to states we are looking at a black hole.

In this regard, it was amusing to see government interferes to force prices of air travel lower. There was so much noise around this development. Despite airlines crying foul, government used its coercive powers to show the airlines who matters when it comes to issues like this. After government orders, the airline fares have dropped by 20-25%.

One good thing to have come out of this is that airfare pricing would become more transparent. The govt has now asked the  airlines to post the fares on their websites.

But overall, it is all a very bad experience. If government can force lower prices of airtravel..why not in other areas as well? As of now all basic amenities (food, housing, clothes etc) are beyond the reach of the middle class and we are not even talking about the poor people here. And the government is more interested in addressing prices of airlines which matter to just a very very small percent of population and most have the capability to pay. In this case the government could also use its own carrier offering lower prices than competitors.

Why did the government interfere? It thought that the industry is operating like a cartel and as a result all prices are up. But this is the case in most industries with prices shooting through the roof. Overall living has become so costly. So, if government can see some crazy pricing in Airfare, why doesn’t it see it other activities as well?

When it comes to these basic amenities the government shrugs off and says prices are determined in the market. What can we do? Take the housing market. Pardon me for referring to this again and again but as nothing happens you just feel so frustrated. The biggest purchase in a one’s life has absolutely nothing for buyers. It is fully in the favor of the seller and the builder. Every builder is just busy raising the prices and you have no option but to pay up. In Navi Mumbai, thanks to the airport prices have been surged by 5-10 lacs in a week of airport clearance. Is that fair to the public? The same ministry which has rasied hue and cry over the rise in air fares doesn’t raise any hue and cry over the impact of the airport.

So, first government should not really be interfering in private sector pricing. Second, It can interfere in exceptional situation of cartel formation and rigging of prices. Third, intervention should be in sectors which matter to large percent of public and not just in a sector which matters to a little and largely wealthy population.

I was reading this Anil Padmanabhan article in Mint:

For a government that never tires of espousing the cause of the aam aadmi (or making growth inclusive so as to draw more ordinary people into the process), this would be the biggest gesture for inclusiveness. This would be the political economy of tackling crony capitalism.

Failure to act decisively at this point will be tantamount to an act of omission; the rot is so deep that even this is no longer excusable. The government would run the risk of inviting the charge that it is but a representative of the khaas aadmi (privileged few).

I would say there is no risk of inviting the charge. Its recent actions and scams show it is a representative of the khaas aadmi. Who cares for the aam aadmi. He is only discovered in times of elections.

Mint edit calls it socialism of airlines. It is plain case of select cronysim. May be the airlines were not able to lobby as effectively where other industries are doing it all too well.

2 Responses to “Why doesn’t the government interfere to lower other prices apart from air fares?”

  1. Tarun Says:

    Airlines are easy!!! food stuff is difficult…its votes by the way

  2. Airfares and Socialist Proclivities… « Exploreamaze’s Blog Says:

    […] the issue of the so-called disinterest from Government on non-airfare items, I disagree with the author on this blog – Well written but flawed nonetheless. The issue was not higher air fares, rather it was the sudden […]

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