This is the 34th installment of my weekly column for Mint, Thinking it Through.
Earlier this week I escorted my aunt from Chandigarh to Delhi, where she was due to catch a flight back to the US. She was in India after many years, and at Chandigarh airport she looked around us and remarked that many of our fellow travellers would probably have travelled in trains a decade ago. I gushed about how competition in the airlines industry had made prices so much more affordable for all of us. Lower prices, more choices, yada yada yada.
Having dropped her off, I made my way back to Mumbai where I came across this poignant news report in London’s Sunday Times:
An Indian entrepreneur has given a new twist to the concept of low-cost airlines. The passengers boarding his Airbus 300 in Delhi do not expect to go anywhere because it never takes off.
All they want is the chance to know what it is like to sit on a plane, listen to announcements and be waited on by stewardesses bustling up and down the aisle.
In a country where 99% of the population have never experienced air travel, the “virtual journeys” of Bahadur Chand Gupta, a retired Indian Airlines engineer, have proved a roaring success.
While flying has become relatively affordable over the last decade, for most people in India it is still a dream. Kudos to Gupta for finding a market in these dreams of flying, but I can’t help thinking that many of his customers could actually take a flight for themselves if the government just got out of the way. How is that? Let me explain.
I flew from Delhi to Mumbai on a GoAir flight that cost me Rs1,985. Out of that, Rs1,485 was taxes to the government, with the airline pocketing just Rs500 of my fare. Indeed, I have bought tickets in the past that have brought the airline in question around Rs100, but the total cost of my ticket has always been more than Rs1,500 because of the taxes. And how much did a ticket to Gupta’s make-believe plane cost? According to the Sunday Times report, “about £2 each”.
If the government did not take its hafta, flying would be within reach of Gupta’s customers, and of most people who travel by trains. Sure, most tickets would cost more than a hundred bucks, but having booked umpteen flights on makemytrip.com, I think it is safe to say that if you booked in advance, you’d be able to fly anywhere in the country for between Rs500 and Rs2,000.
During her visit to India, my aunt was also amazed at the ubiquity of mobile phones. Everyone she met had a mobile, from my parents’ cook to the drivers of autorickshaws we rode on, and so on. They could not have dreamed of owning a landline 10 years ago, and if they were from out of town, they would have made an STD call to their families once a month. Indeed, even middle-class people often had to spend years on a waiting list to be ‘allotted’ a landline in the 1980s. Today, because of competition, most people, at least in cities, can afford mobile phones.
The lesson there is that the more the government removes barriers to trade, the more people benefit. Governments pay lip service to fulfilling the needs of people, but that is something that businesses do best. Any business that fails to satisfy its customers will fail in a truly competitive market. Any need that people have in a free market will be fulfilled by some entrepreneur or the other. The efficiency that competition forces upon these businesses cannot be matched by government, for the incentives of government employees are tailored towards increasing their power, influence and budgets—and nothing else.
The exorbitant taxes that the government takes off airline tickets are effectively a barrier to trade. Such barriers, typically, harm the poor more than the rich. I don’t know what the government does with these taxes, as it does not present us with an itemized account of how it spends our money, but I am certain the private sector can do it better.
The taxes charged on our airline tickets come at a cost. One, they act as a brake on the expansion of the industry, which would serve more customers, provide more quality and employ more people if there were minimal taxes. Two, they take money away from people who would otherwise spend it or save it, and would surely do so to more productive purpose for the economy than an unaccountable government spending someone else’s money.
The state has failed miserably in performing the few tasks that justify its existence, such as providing effective law and order. Instead, it collects a vast amount of hafta from us, most of which is wasted, as Rajiv Gandhi once admitted and none of his successors would have the audacity to deny. It has also hobbled free enterprise, the cost of which is felt by the many people who sit inside Bahadur Chand Gupta’s plane, listening to the announcements, dreaming of flying, waiting to take off.
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You can browse through all my columns for Mint in my Thinking it Through archives.
I got the Sunday Times link via email from Anand Krishnamoorthi. My thanks to the cartel for its inputs—as always.
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Update (October 5): Readers have written in to inform me that a fair chunk of what the airlines list under ‘taxes’ is actually a fuel surcharge that goes to the airlines. That may be so, but aviation fuel in India is heavily taxed, and is consequently much more expensive than in other South-Asian countries. The latest figures I could get hold of were from a year ago, when aviation fuel cost Rs37,000 / kl in India, as opposed to Rs22,383 in Bangkok, Rs21,111 in Singapore, Rs21,427 in Kuala Lampur and so on. Obviously the airlines pass on this extra burden onto the consumers, but it may not have been such a burden in the first place if not for the taxes.
It’s hard to say exactly what percentage of the fuel surcharge can be attributed to the tax on aviation fuel, but I’m guessing that’s a huge factor. Either ways, I stand by my argument.