The Hindu Business Line : Serve up some competition

FOR THOSE POLICY-MAKERS racking their brains to find the means to reverse the rising inflation, two events last week must provide some refreshingly different clues. The first was the launch of the inter-metro service by the fledgling, no-frills airline, Air Deccan. For as low as Rs 700 (including a Rs 200 tax) the airline has offered to fly passengers from Bangalore to New Delhi. True, those who fly on its aircraft will feel cramped in their seats and need to pay for meals and water. And only a few seats will be available at that rock-bottom fare. But even the most expensive seat on the airline will be 30 per cent cheaper than the normal economy fares elsewhere making travel cheaper by plane than in an air-conditioned railway coach. All this has happened in conjunction with an increase, not decrease, in the price of aviation turbine fuel. The normal response of airlines to a rise in fuel cost would be to raise fares. Yet, none of the four other domestic carriers has been able to do so this time; in the jostle for market share, they have introduced far more capacity than there are passengers.

The second event was played out in the telecom theatre. It started with Reliance Infocomm dropping tariffs; most other service providers followed suit, as pressure built on them. Even the one-time monopolist and still the largest of them, Bharat Sanchar Nigam Limited, has cut its long-distance call charges by up to 60 per cent. To make cost-cutting possible, service providers have squeezed out the efficiencies that scaling up has afforded. Expanding at almost 80 per cent a year, India's telecom sector is becoming one of the cheapest in the world. It is instructive to look at the history of these two sectors. Both were once the preserve of the public sector. Pricing was by official diktat, and service often indifferent. The wait to get telephone connections ran to several years at some places; seats on Indian Airlines had often to be won with "influence". The infusion of competition has changed the complexion entirely. Even the public sector service providers have transformed themselves; they are better tuned to customer needs, and use pricing as an effective tool to deal with competition.

Could such a lesson be used in other theatres where inflation is playing up? The energy sector is one that has experienced the maximum rise in prices over the past decade. Unsurprisingly, this is where administered prices, if not public sector monopolies, still rule. In coal, the public sector majors hold the whip hand on production and prices; private mining is still restricted to captive use. State electricity boards or their siblings maintain their stranglehold over the consumer. Only in petroleum have the public sector companies been freed to set their own prices, and three private companies licensed to retail products. But these are early days of competition in this sector and the players have preferred to stay carefully in the comfort zone of government-determined prices. If the Government chooses actively to promote competition, it will see the creation of fresh, efficient capacities and a new zest among producers to serve the customer. That can only have a beneficial impact on inflation.

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