West is vigilant about predatory pricing, India not

Predatory pricing is alive and kicking in India. But developed economies have found ways to check them. The most glaring case is the cost of flights to and fro Bhubaneswar following the June 2 train accident. From a normal price range of ₹6,000-₹8,000 for a flight between Delhi and Bhubaneswar, it went up to ₹56,000 the very next day, on June 3, 2023 (more than what it cost for a Delhi-Paris flight on the day). Despite Civil Aviation Minister Jyotiraditya Scindia appealing to airlines on June 5 to ensure reasonable airfares, it went up even further.

On June 7, 2023 – two days after Scindia’s appeal – a search of the MakeMyTrip website yielded shocking results. It showed, the only direct flight for the day was priced at ₹12,492 (Air Asia, 16.30 hour); one-stop flight at a minimum of ₹25,691 (Indigo, 22.55 hour) and a maximum of ₹56,207 (Vistara, 17.50 hour); two-stop flight priced at a minimum of ₹24,636 (Air Asia, 19.25 hour) and a maximum ₹87,508 (Vistara, 19.55 hour).

The minister’s appeal appeared to be ignored. Why this was so would be clear soon.

Predatory pricing is not limited to flights to Bhubaneswar, nor was Scindia’s appeal of June 5. On the same day, June 5, the Delhi-Leh flight ticket touched ₹52,000. Scindia was at an event later in the evening where he was asked why flight ticket prices were soaring. He replied: “In 1993, my father brought in an open sky policy and we deregulated the civil aviation sector, so there is no regulator for pricing of fares”.

For the record, after a price capping review on August 10, 2022, Scindia tweeted: “The decision to remove airfare caps has been taken after careful analysis of daily demand and prices of air turbine fuel. Stabilisation has set in & we are certain that the sector is poised for growth in domestic traffic in the near future.” That is, there are no price caps on flight tickets in India.
Scindia is right, and his explanation makes is clear that his appeal was ignored. India did de-regulate airline tariffs in March 1994 by repealing the Air India Act (not in 1993 as Scindia said). However, what he didn’t says holds the key to the predatory pricing seen more than 22 years later (after 2016).

Here is a brief background.

Predatory pricing is official

On June 15, 2016, then Civil Aviation Minister P Ashok Gajapathi Raju announced the National Civil Aviation Policy (NCAP) “with a vision to create an eco-system to make flying affordable for the masses” With the NCAP-2016 came the “Ude Desh ka Aam Nagrik”, in short, “UDAN” of 2016, “for promoting regional connectivity in the country as envisaged in NCAP-2016”.
On the face of it, both NCAP-2016 and UDAN-2016 aimed at enabling the masses (aam nagrik) to fly. This embodies the Prime Minister’s dream “mera sapna hawai chappal pahanne wala hawai jahaaz me bathe” (my dream is to let people wear slippers to fly in airplanes). But as it turns out, ‘the road to hell is paved with good intentions’.

NCAP-2016 essentially fixed a minimum cap on flights at ₹2,500 but no maximum cap. What this meant was that a Captain Gopinath-type budget airline Air Deccan of the early 2000s was no longer a possibility in India. “Airfare of about ₹2,500 per passenger for a one-hour flight”, says NCAP-2016. There was only one way for the flight tickets to go after 2016 – that is UP.

That was what happened with the Indian Railways in 2016 also. The Indian Railways came out with the “policy of Dynamic Pricing” in 2016, under which “the fares of the railway tickets are to increase by 10% after every 10% of berths or seats being sold”. Hence, train tickets keep rising as seats get progressively booked – something which the airlines also do in India. Notice, the phrase “dynamic pricing” was not used in the NCAP or UDAN. Has anyone noticed, the refunds for cancelled train and plane tickets have been reduced to a few hundred rupees even when cancellations are before the last 24 hours?

Two other things: (ii) a “Tariff Monitoring Unit (TMU)” working under the DGCA “monitors airfares on certain routes on a monthly basis to ensure that the airlines do not charge airfares outside a range declared by them” and (ii) “fare bands” are revised from time to time “to keep the aviation sector viable while protecting the interests of the passengers”.

DGCA has the data to check for violations of declared “fare bands” by airlines (like charging ₹50,000-₹80,000 for New Delhi-Bhubaneswar flights or ₹52,000 for New Delhi-Leh flights) and take appropriate punitive measures if violations were noticed. Try to locate the TMU on the DGCA website to know what monthly “fare bands” airlines have declared and you will draw a blank.

Aviation expert Praveen Paul explains to Fortune India what is happening.
He says DGCA’s TMU is “blackhole” because nothing is known about its functioning or the “fare band” it receives every month (not put in the public domain). Hence, the violations are not known to the passengers. The India-type predatory pricing doesn’t happen in developed countries because, despite dynamic pricing, (a) their airlines have very strong pricing oversight committees and their passengers’ associations are very strong and (b) their regulatory bodies monitor for predatory and mercenary pricing. He gives the example of his students at Bangalore’s St Joseph’s University who are forced to take buses/trains to their homes outside Karnataka during vacations because Indian airlines know the timing and raise prices so high that students can’t afford the air tickets. It is a normal routine.

India, of course, doesn’t have aviation and train regulators or passengers associations. The protests against skyrocketing airfare for Bhubaneswar flights are limited to social media. It must be pointed out that the flights governed by the UDAN policy, flight prices are controlled by the government but those are limited to unviable and unlinked sectors in the northeastern states, hilly states of Uttarakhand and Himachal Pradesh to develop. For that, the government provides viability gap funding (VGF), waives off airport charges, and gives various tax concessions (excise, VAT, service tax, etc.).

Predatory pricing in fuel and telecom

Predatory pricing is not limited to flight and train tickets. Since April 2022, retail fuel prices have remained unchanged despite India importing huge amounts of cheap Russian oil, at or below $60 a barrel. Oil refining and marketing firms—both from the public and private sectors—are making windfall gains. Domestic consumers get no relief from cheap oil.

Now, recall how Reliance Jio used predatory pricing in 2016 – free call and data services for mobile phones for 200 days and then at dirt-cheap rates for more years – to eventually kill competition and competitors, and capture a dominant position.

The Competition Commission of India (CCI) junked all objections to Reliance Jio’s predatory pricing in June 2017, stating that giving free services couldn’t, by itself, “raise competition concerns unless the same is offered by a dominant enterprise,” while holding that the Reliance Jio wasn’t the dominant player when it offered the free services.

The telecom regulator had earlier allowed Reliance Jio’s “free and promotional services” and in February 2018, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) ruled in its favour by stating that no rules were violated. Now, six years later, the TRAI would be examining tariff plans – both present and past – to check predatory pricing.

West is acting against sellers’ inflation

Predatory pricing has two new names these days in the US and Europe – “sellers’ inflation” or “greedflation”. Fortune India wrote last month about how those countries are waking up to this phenomenon which they didn’t suspect to find whether they find now and are preparing to act tough (strengthening anti-price gauging measures, among others). The “causal link” between corporate profits and rising inflation would have been considered “heretical” until mid-2022. Economist Isabella Weber of the Amherst, Massachusetts University almost single-handedly demolished the prevalent thinking since the 1970s that inflation could only be caused by excess demand over supply/capacity or too much money chasing too few goods – but not by marking up prices. Costs going up were considered “purely a matter of inflated wages” with “no role for profits or the power of firms to set prices”.

On June 6, 2023, Christine Lagarde, president of the European Central Bank, acknowledged that there wasn’t “good data” on corporate profits to fully understand “sellers’ inflation” although it was “observed” that corporates took “advantage” of cost-push by demand-supply mismatch and/or supply bottlenecks to raise profit and cause inflation thereby either (i) by not cutting down profit margins to accommodate cost-push in some sectors or (ii) by raising profit margins per se in other sectors. She sought competition authorities to look into the “legitimacy” of such practices.
The New Yorker wrote the same day, on June 6, 2023, that Isabella Weber’s “heterodox ideas” about government price controls (not by “regulators”, which is different as regulators are independent and autonomous entities) are now transforming policy in the US and across Europe.

It said: “Today, in a host of key sectors, that’s more or less happening. The European Union is regulating the price of natural gas, the Biden Administration is regulating the price of oil, and the G-7 is enforcing a global cap on the price of petroleum products produced in Russia.”
In contrast, nobody talks of sellers’ inflation or predatory pricing seen in so many sectors.

More than a month after former RBI Deputy Governor Viral Acharya demonstrated with data and analysis that the Big 5 of Indian conglomerates, Reliance, Tata, Birla, Adani, Bharti groups, were profiteering by market dominance and asked for breaking them down (“dismantle or reduce the market power of Indian conglomerates”) there is silence from the government and industry.