Orchestrating transport

The aggressive entry of low-cost airlines into a buoyant market will certainly provide some cheer to several thousands of people who can now afford to fly.

With a planned fleet expansion of 40 Airbus 320s over the next three years or so, Air Deccan and Kingfisher Air will have enough capacity to put enormous pressure on the fares that regular operators charge.

However, as positive a development as this may be for a class of consumers, viewed from a broader perspective it gives rise to questions about the adequacy of the country's transportation policy.

Even when one is generally sympathetic to market forces and the outcomes that they generate, the nature of transportation, in particular the huge investment required in its fixed infrastructure components""roads, railway lines, airports, etc.""does warrant some policy intervention.

The objective would be to co-ordinate investment activity between various modes of transportation, so that investors face a predictable long-term environment free from policy risk. The more explicit and transparent the policy, the greater would be the attraction for private investment in each sector.

The Planning Commission had initiated discussion on an integrated transport policy back in 1999, but the idea does not appear to have made much progress.

Individual ministries are responsible for policies pertaining to their domains; if there is any formal process of orchestration between them, it is as yet difficult to detect in the outcomes.

Low-cost airlines will succeed because they will tap into a huge consumer segment that currently patronises the upper-class services provided by the railways.

These services are priced far too high (relative to the cost of provision), so as to enable the railways to cross-subsidise their lower-class services.

Even for the fares charged, in peak season, demand far exceeds the availability of upper-class services. In a scenario in which the railways price their services rationally, the market opportunity for low-cost airlines might be much smaller than is currently perceived.

Of course, Capt. Gopinath and Dr Mallya may see negligible risk to their operations as a result of the railways suddenly re-working their relative prices across classes. But that only underscores the point that what is good for individual businesses is not necessarily good for the economy.

Within the aviation sector itself, the enthusiasm for fleet expansion is unfortunately not matched by an eagerness to expand airport capacity or even rationalise the use of existing facilities as a short-run measure.

In the two busiest airports (and they will remain so for the foreseeable future), the expanding list of private airlines is being squeezed into the woefully inadequate old terminal buildings, while Indian Airlines enjoys exclusive use of the new facilities.

Surely, within the civil aviation ministry itself, co-ordination between those responsible for airports and those for airlines is not too much to ask for?