Why in the News?

• India recently witnessed two major transport disruptions: severe overcrowding on Bihar-bound trains during October-November, and mass cancellation of Indigo flights in December.
• The events raise critical questions on pricing policies, regulatory oversight, monopolies, and the role of the state in ensuring accessible and efficient transport services.

What’s in Today’s Article?

• Strain on Public Transport (Demand Pressures, Constraints of Fiscal Framework, Indigo Crisis, etc.)

Demand Pressures and the Strain on Public Transport

• During Chhath Puja and the Bihar elections, lakhs of migrants attempted to return home, producing a sharp, sudden demand shock for long-distance trains.
• With prices kept low for welfare purposes and limited train availability, passengers faced extreme overcrowding, unsafe travel conditions, and inhospitable unreserved compartments.
• Economic theory suggests that rising demand should push up prices to equilibrate the market.
• However, in essential public services like railways, artificially low prices are a welfare mandate.
• The resulting excess demand exposes the underinvestment in public transport infrastructure, rather than a pricing failure.
• Why Raising Prices Is Not the Solution?
  • Critics often argue that low fares create inefficiency. However, the core issue is inadequate supply, not affordability.
  • For essential sectors, health, education, and public transport, low pricing is integral to welfare. What is missing is state-led expansion in capacity.

Constraints of a Neo-Liberal Fiscal Framework

• Fiscal Limits on Public Investment
  • India’s fiscal rules constrain government spending, preventing large-scale expansion of railway capacity.
  • Strict deficit targets limit the ability to build additional trains, add new routes, or expand infrastructure.
• Impact on Public Welfare
  • Thus, the state is forced into a paradox:

• Keeping prices low to maintain welfare,
• But it lacks the fiscal bandwidth to expand services.

• This leads to systemic overcrowding, service degradation, and periodic crises.

Private Sector Vulnerabilities: The Indigo Flight Crisis

• In December, Indigo, India's dominant private airline, cancelled a large number of flights due to regulatory issues, creating a supply shock. This triggered:
  • Stranded passengers
  • Sharp spike in airfares across airlines
  • Market-wide disruption, despite the issue originating in one firm
• This is because Indigo holds a near-monopoly in several sectors of the Indian aviation market.
• In a competitive market, one airline’s supply cut would not cause such widespread chaos. The episode underscores the need for regulatory oversight to prevent monopolistic dominance.

Common Structural Thread Between the Crises

• At first glance, the train overcrowding and airline cancellations seem unrelated, one arising from public sector limitations, the other from private sector dominance. But both crises stem from a single underlying framework:
  • Underinvestment in essential public services
    • Public transport is priced low for welfare reasons, but cannot expand sufficiently under strict fiscal rules.
  • Overreliance on deregulated private markets
    • Private airlines operate with concentrated market power, enabling fare spikes and system-wide disruption when one firm fails.
  • Together, these factors reflect the constraints of a neo-liberal policy model, where the state is discouraged from expanding welfare services and private monopolies grow unchecked.
  • The result is recurring transport crises affecting millions.

Way Forward

• The lessons from recent events point to three clear policy needs:

• Expand public investment in railways and essential transport infrastructure.
• Strengthen regulatory oversight of private operators, especially monopolistic entities.
• Reassess fiscal rules to allow higher spending in welfare-critical sectors.

• Transport is not just an economic service; it is a public good.
• Ensuring reliability, affordability, and resilience requires a balanced model where both state capacity and market behaviour are aligned with public welfare.