Monday 2 November 2015

A Criticism of India's Aviation Policy


Published in Swarajya on October 25th
http://swarajyamag.com/biz/excessive-government-interference-is-strangling-civil-aviation/

I view the performance of this government vis a vis the economy in poor light for a variety of reasons. The argument that it is better than the previous government certainly does have some truth to it but that shouldn’t become an excuse for the non/under-performance of the current government. One sector in which this government has performed disastrously is the Aviation Sector. In this article, I seek to demonstrate how.

‘PM Modi concerned over predatory pricing by airlines’; ‘PM Modi Wants Cheaper Airfares, Airlines to be told’.
Let us first look at what Predatory Pricing is --- it is one of the many popular myths about Markets which propounds the view that certain companies adopt a strategy of offering prices low enough to drive away competitors (i.e. lower than average cost) creating monopolies. It along with the other ‘evil’- price gouging; has very little economic logic to back it up. [1]
The first of the above two headlines is from Aug 27[2] and the second came out on September 2[3]. It took 6 days for the Prime Minister’s concern to shift from ‘Predatory Pricing’ to wanting ‘Cheaper fares’!!
 According to the second news report, i.e. on Sept 2, the MoS of Civil Aviation Dr. Mahesh Sharma said, "It is a competitive market that determines the pricing of air tickets but the government of India, including the Prime Minister, is concerned about passing on the benefit to passengers;….. Soon, we will have a meeting with airlines on predatory pricing." The benefit he is talking about is the reduced ATF prices- not out of any cut in central ATF taxes but a result of a fall in the global crude prices being passed on by Indian Oil Marketing Companies i.e. OMCs .
This isn’t the only time the Minister has revealed his lack of understanding of economics. On the 27th of June he had remarked[4] ,“Predatory pricing by airlines is a big issue. A large section of the public and even parliamentarians have raised the issue that airlines charge Rs 30,000-40,000 for a ticket when a passenger has to travel in some emergency.”
The fact that there is very little evidence to back up the charge of ‘Predatory Pricing’ hasn’t stopped our ‘Consumer-protection Associations’, politicians, and the pen-pushing bureaucrats from using it as an excuse for price control and a more regulated sector. It appears that the only ‘pricing policy’ of this government vis-a vis aviation seems to be- Interfere in Market Process erratically whilst following the dictum of maximum government.
Going back in time a little, we come across detailed suggestions from the Aviation Minister Ashok Gajapati Raju’s deputy MoS Dr. Sharma on how this ‘Pricing Policy’ can be structured as[5] :
a. Setting of Price Ranges for Airfares;
b. DGCA assessment of fares during different seasons for fixing ‘appropriate’ price caps; and
c. Using Air India’s fares as the basis for pricing mechanisms and then cutting Air India’s fares on select routes.

It is pertinent to note that although both Minister Raju and MoS Dr. Sharma have advocated some form of pricing regulation, MoS Dr. Sharma seems to be the one pushing for it rather vociferously. It is frightening to see a conservative government being led by a Prime Minister who frequently used ‘Minimum Government, Maximum Governance’ in his campaign, advocate such brazen regulatory intervention into Aviation Markets!

Aviation Ministry’s Infighting –
Conflict within an organization isn’t good, especially so if the organization makes decisions which affect millions of people. The Aviation Ministry has been according to various news reports [6]plagued by infighting  which  might be the real reason behind the delay in release of the draft Aviation Policy. The Civil Aviation Minister appears to advocate less government intervention and has announced multiple times that the disastrous 5/20 rule will be scrapped. His deputy who seems to be gunning for his post- Dr. Mahesh Sharma does the exact opposite advocating institution of price control mechanisms and other forms of government intervention for the usual reasons, public benefit and air connectivity to backward areas.
Take the case of ‘Baggage Charges Incident’. Some no-frills airlines had proposed to the Directorate General of Civil Aviation (DGCA) that they would charge for Check in Baggage and also institute a Zero Baggage Fare to enable light travellers to benefit from lower fares and at the same time encourage such light travelling. The MoS Dr. Sharma directed the Aviation Ministry on June 27th to disallow the same. The reason he gave was laughable – ‘Such a move, if allowed to go ahead will be a dampener in air traffic growth in India’. According to him, lower prices will lead to reduced demand for air travel. Is it too much to expect the Minister of State for Civil Aviation to know the Law of Demand and Supply? On July 1st, Minister Raju contradicted his Junior Minister’s remarks saying -
‘Nothing is free, everything is paid for, whether it is your baggage or ticket or things like that… Airlines at one point of time were considered elitist, now it is not and there are multiple people who (travel by air)’. He later remarked that this decision needs to left to the regulator.
This is not the only time such disputes and ‘Differences of Opinion’ have occurred in the ministry -
the NCR Airport Issue , regulation of fares in the festive season and many more.

Air India
Recently, Rohit Nandan’s successor as the CMD of Air India was announced as Ashwani Lohani , a non IAS officer (Thank the Gods!!, after 12 years). The new CMD calls himself Mr. Turnaround and is reputed to have turned around ITDC during the ABV years. Previously, Mr. Lohani has claimed that he will turnaround Air India within a year, if given a chance[7], which is hard to believe. Air India had asked for a revision of the original Turn Around Plan (TAP) under which the GoI had agreed to provide a 30,000 crore infusion into Air India over a period of 10 years in a phased manner subject to Air India achieving certain targets. SBI Caps which had prepared this turnaround plan had brilliantly assumed crude @ $45 for the entire period of the plan (It had made other brilliant assumptions[8]). One should rightly put the blame for that on the UPA government. The present government though has tasked the same SBI Caps with making the revision to the TAP and no matter how hard you try, the error this time is of our minimum government.
One would think that they would have atleast put a stop to the gravy train that Air India is to all sorts of powerful individuals – MPs, Management of Air India, the employees, and our bureaucrats; but no, this too continues in various forms. Our “Minimum Government “ continues to use Air India as a Foreign Policy instrument (continuing a long standing tradition), the latest instance of which was the announcement of non-stop flights to San Francisco from New Delhi during the Prime Minister’s recent visit to the US. This despite the fact that no viability study of the same has been conducted and such foreign operations have been bleeding Air India dry by contributing to almost 70% of the operational losses of Air India[9]! The Prime Minister funnily told the audience at the Facebook Townhall that his 4D’s include De-regulate (Dear Citizens of India, happy De-regulation!!). While this de-regulation happens, Air India continues to be the poison pill of Indian Aviation.
Green shoots of Progress-

The 5/20 rule.
The infamous 5/20 rule makes it compulsory for airlines to have a minimum of 5 years of flying history and 20 aircraft to be able to fly to overseas destinations. It is by its very nature anti-competitive as it prevents new entrants from operating certain routes of established airlines, thus lowering the prices. The only organizations which benefit from this rule are the established airlines like Jet Airways and IndiGo which are afraid of loss of margins due to increased competition in profitable international routes. 
I’m of the firm belief that the person who thought up this rule should be given an award of some sort. Only a brilliant mind can think up such innovative ways to screw the consumer.

The Minister of Civil Aviation Mr. Raju has repeatedly announced that this rule would be repealed. He has been announcing the same for almost 15 months and that’s about it. Though, no progress  has been made on actually removing the rule. Then we heard that the PM wanted the rule to go. Good News Finally?? Think Again. The Ministry of Civil Aviation in its infinite wisdom is thinking of ‘replacing’ the rule[10]. So we don’t know as of now how this issue will play out. But we still have to commend the Prime Minister for atleast taking a pro-growth stand as he reportedly said[11] - "If the rule is stifling the growth of our carriers, the rule should completely be abolished and not replaced. What is the need to replace a rule with something when the rule itself is not pro-growth,"

The Government needs to get out of the way!
For Indian Aviation to soar, the Government needs to take a relook at it’s policy of interference, high taxes, continuing to fund poison pills, and creating ever monopolising rules for the ‘public benefit’. It has to realize that this is the exact same policy which their predecessors tried and which has had disastrous consequences. It needs to learn to accept that they can’t run, control, and extort Indian Aviation while ‘planning’ their way out of Air India’s financial abyss. It needs to ‘Get out of the Way’ soon to achieve “Minimum Government” and de-regulation.



[1] For More on the same- http://www.cato.org/publications/policy-analysis/myth-predatory-pricing
[2] http://www.firstpost.com/business/pm-modis-concern-over-predatory-airfares-likely-cess-on-tickets-2410814.html
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Utopia

Utopia
Island where all becomes clear.

Solid ground beneath your feet.

The only roads are those that offer access.

Bushes bend beneath the weight of proofs.

The Tree of Valid Supposition grows here
with branches disentangled since time immemorial.

The Tree of Understanding, dazzlingly straight and simple,
sprouts by the spring called Now I Get It.

The thicker the woods, the vaster the vista:
the Valley of Obviously.

If any doubts arise, the wind dispels them instantly.

Echoes stir unsummoned
and eagerly explain all the secrets of the worlds.

On the right a cave where Meaning lies.

On the left the Lake of Deep Conviction.
Truth breaks from the bottom and bobs to the surface.

Unshakable Confidence towers over the valley.
Its peak offers an excellent view of the Essence of Things.

For all its charms, the island is uninhabited,
and the faint footprints scattered on its beaches
turn without exception to the sea.

As if all you can do here is leave
and plunge, never to return, into the depths.

Into unfathomable life.

IF there is any poem by Wislawa that Ive come to love, it is her poem Utopia. This ex- communist Polish poet speaks to my heart as I am an ex-communist myself.  I couldn’t confirm but I deduced through secondary sources that she wrote this poem sometime after 1960. That was the period during which the scourge of Communism/ Marxism was spreading throughout Europe like wild-fire. She had probably realised due to the Polish Government’s attempts to censor her poem; that the communist/ Marxist/ Socialistic ideology and their governance machinery was inherently fascist.
Like Islam is presented today by ideologues cum ‘intellectuals’ and fanatics as the answer to all human problems and the perfect solution; Communism was presented by leftist ideolouges, intellectuals, etc as the panacea to all human problems.

Wisława Szymborska-Włodek  (2 July 1923 – 1 February 2012) was a Polish poet, essayist, and translator. She was the recipient of the 1996 Nobel Prize in Literature.
Szymborska was born in Prowent. She died 1 February 2012 at home in Kraków (a Polish City) from natural causes, aged 88.

Poland under the guidance of the leaders of the Soviet was heading towards the said ‘Utopia’; atleast they told their citizens that they were. An utopic world would be one with perfect knowledge
(Echoes stir unsummoned
and eagerly explain all the secrets of the worlds )
as well as equal prosperity. That the committees i.e. the Politburos of the world even thought that they through ‘collective action’ and ‘scientific committees’ could attain perfect knowledge was and continues to be laughable in itself. The part about shared prosperity turned out to be a farce in real life with hundreds of instances of mass starvation, rampant shortages and general statism. It was in this world that the poem  ‘Utopia’ was written by Wislawa Symborska.

The poet refers to the Utopic world as an Island. One wherin ‘ all becomes clear’ i.e. one with perfect knowledge. It may be wrong to read too much into a translated version of a poem but I find it extremely interesting that the poet has used the line ‘The only roads are those that offer access’. This is because every Tom, Dick and Harry in communist countries would offer a foreigner or a member of the elite access to the Politburo i.e. the uber elite in exchange for a large consideration. The poet then uses symbolism –‘ Tree of Valid Supposition ‘ and ‘Tree of Understanding’ to describe the intelligentsia in such an utopia who held beliefs about armed proletarian revolution which they could lead from their armchairs ; Dialectical Materialism in their eyes was true (A valid Supposition ) giving way to the Tree of Understanding which grew in the springs of ‘Now I get it’ . The communists used Marx’s fuzzy concept of Dialectical Materialism (The spring) to analyse everything from Human behavior to animal behavior (Tree of Understanding).

 The poet uses – ‘Valley of Obviously ‘, ‘If any doubts arise, the wind dispels them instantly.’ to again describe the said Utopia of perfect knowledge wherein all doubts are dispelled instantly. She is probably referring to Communist attempts to dispel all doubters through the dialectical red armies. The poet goes on describe the Island by personifying Meaning and Deep Conviction as caves on the Island ; she then goes on to say "For all its charms, the island is uninhabited,". People for all their demands of security  –financial and physical are too adventurous to remain in such a boring place where there is no purpose to life. She ends with the words ‘As if all you can do here is leave| and plunge, never to return, into the depths.|| Into unfathomable life. ‘The last lines capture the essence of the poem quite clearly.

The poet uses poetic devices like Personification by capitalizing words like ‘Tree, Understanding , Supposition, etc. She uses symbolism in a very elegant way – ‘On the right a cave where Meaning lies.
On the left the Lake of Deep Conviction .’ 


One wonders if she is writing about a Utopic world or a Dystopic world. Events in the 1980s proved that the latter was indeed true. The horrors of the Communist regimes in Asia and Europe came to be known by the rest of the world and the true face of the dystopic ,despotic regimes of Eastern Europe and Eurasia horrified the world by the scale of deprivation, large scale murder and oppressiveness. 
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