Let the markets decide

Govt and regulators should not micro-manage industry

Every policymaker in India repeatedly underscores the need for further liberalisation of the economy and allowing a greater play of market forces. But the reality is that even everyday commercial decisions are routinely subjected to over-regulation. Two such examples have come to light in the past few days. The first one concerns two airlines — IndiGo and SpiceJet — deciding to charge a fee for their online check-in service. The proximate cause was the need to make up for higher costs that the airlines were facing. Unsurprisingly, the reports extracted noisy protests from flyers, prompting the civil aviation ministry to say that it was reviewing the decision to see whether it falls within the unbundled pricing framework. That was perhaps enough for IndiGo to tweak its decision and say passengers doing web check-in will not have to pay for all seats. This is unfortunate as neither airline was doing something that was out of the ordinary. Charging for a preferred seat while doing online check-in is a usual practice followed by many airlines globally. More importantly, there is nothing in the law that bars them from charging a fee for specialised services. Yet, the ministry thought it was all right to issue a review notice for such a decision.
 

Another episode was the warning by the Confederation of ATM Industry (CATMi), the automated teller machines industry body, that almost half the installed ATMs could be closed down by the end of the current financial year because of onerous regulatory requirements. In April, the Reserve Bank of India had mandated a minimum net worth of Rs 1 billion for service providers and their sub-contractors handling cash management logistics on behalf of banks. It also directed cash vans transporting money must have CCTVs, GPS connectivity, tubeless tyres, hooters and wireless communication systems. The new guidelines will lead to additional costs. The trouble is neither the ATM industry nor the banks are willing to pay for the costs as they will find it difficult to pass them on to consumers. The point that is forgotten here is that if a service is being provided, the customer must bear the cost. The parties concerned have reached out to the RBI, demanding either a relaxation in compliance norms or an extension of the deadline, but to no avail.

There are two lessons here. One is for policymakers. They must not interfere in the functioning of the everyday markets. For instance, in the past the aviation regulator tried to specify the fee an airline can charge for luggage. How much an airline should charge for web check-in or luggage is a decision best left to the markets. Competing airlines should be allowed to figure out what works for them and what doesn’t. If an airline charges too high, a customer is free to choose one of its competitors which would likely make use of the opportunity to gain market share. Similarly, ATMs provide a service and banks should be free to charge for it. The other lesson is for consumers — the ease provided by an ATM is a convenience for which they should be willing to pay. The same applies for web check-ins.