The lockdown to combat the pandemic announced in March last year resulted in significant collateral damage. Worst hit was the aviation industry, which was forced to stand still. When the flight resumed with restrictions two months later, the government stepped in to help by setting different price bands based on flight duration. In other words, the minimum and maximum prices have been set. It was an imperfect arrangement, but the context warranted government intervention in the most fundamental aspect of a market economy.
In a market transaction, price is the most important characteristic. It is the signal that influences the current and future allocation of resources. Direct government intervention in a market economy by restricting price movements is therefore a gross distortion. However, almost nine months after domestic aviation resumed, the government decided to continue the price bands. In addition, the minimum and maximum tariffs have been increased, presumably to take into account higher fuel prices. In terms of optics, this is similar to the MSP mechanism. Expanding the price bands is an unwise move. We are at a stage where the government’s pandemic-related controls must end.
The price bands help companies with weak financial data, but do not bring efficiency gains and are at the expense of the consumer. Experience in many countries, including India, shows that minimum support prices are addictive. Hence there is always lobbying to stick with them. The swift return to normal, however, must go hand in hand with a withdrawal of extraordinary government interventions, the justification of which in connection with Covid no longer applies. Pull back the price bands in aviation and let market competition take its course. That is what minimal government and maximal governance is all about.
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This piece appeared as an editorial statement in the print edition of The Times of India.
