Reopen domestic air travel to market pricing

The lockdown announced last March to combat the pandemic led to substantial collateral damage. Among the worst hit was the aviation industry which was forced to shut down. Therefore, when flying resumed two months later with restrictions, the government stepped in to help by fixing different price bands depending on the duration of flights. In other words, the minimum and maximum fares were fixed. It was an imperfect arrangement but the context justified government intervention in the most fundamental aspect of a market economy.

In a market transaction, the price is the most essential feature. It is the signal which affects the present and also future allocation of resources. Therefore, direct government intervention in a market economy through restrictions on price movement is a gross distortion. Yet, almost nine months after domestic aviation resumed, the government has decided to continue with price bands. Not just that, it has also increased the minimum and maximum tariffs, presumably to account for higher fuel prices. In terms of optics, this is similar to the MSP mechanism. The extension of price bands is an unwise move. We are at a stage when the pandemic-related controls by the government have to end.

The price bands are seen to be helping out companies with weak financials, but they bring no efficiency gains and are at the cost of the consumer. The experience in many countries, including India, shows that minimum support prices are addictive. Consequently, there is always lobbying to persist with them. But fast-paced return to normalcy needs to be accompanied by a withdrawal of the extraordinary government interventions, whose Covid-related justification does not hold any longer. Withdraw the price bands in aviation and let market competition take its course. This is what minimum government, maximum governance is about.


This piece appeared as an editorial opinion in the print edition of The Times of India.


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