Recent Transport Crises in India – Lessons to Learn

Why in News?

Recently, India has recently faced two major transport disruptions that highlight important economic lessons.

What are the recent issues?

• Overcrowded Trains of Bihar – The severe rush for Bihar-bound trains during October and November occurred because migrant workers travelled home for Chhath Puja and the Bihar elections.
• This sudden increase in demand, without a corresponding increase in supply, created a textbook demand shock.
• Since Indian Railways maintains low and fixed ticket prices for public welfare, fares did not rise even though demand shot up.
• As a result, travellers were forced into dangerously overcrowded trains, especially in unreserved compartments.
• According to standard economic theory, prices should rise when demand increases so that only those willing to pay the higher price would travel.
• While this might create market equilibrium, it would also deny essential travel to people who cannot afford expensive fares.
• The IndiGo Crisis – In contrast to the railway crisis, the mass cancellation of IndiGo flights in December was a classic supply shock.
• IndiGo cancelled a large number of flights due to regulatory non-compliance.
• This sudden reduction in supply occurred while normal demand for flights continued.
• Because IndiGo controls over 60% of the Indian aviation market, the withdrawal of so many flights created immense disruption.
• Ticket prices on other airlines skyrocketed, passengers were stranded, and consumers suffered significant financial losses.
• Such extreme market-wide effects occur only when a single private company dominates the sector.

What are the reasons argued for transport crisis in India?

• Debate of low Prices and inefficiency – Critics often claim that low railway prices create inefficiency because excess demand results in overcrowding.
• However, this criticism ignores the real issue.
• The core problem is not low fares, but the insufficient supply of trains and seats.
• Essential services such as rail travel, healthcare, and education must remain affordable to ensure social welfare.
• Therefore, the correct solution is not to raise prices but to expand supply through greater public investment.
• Significant government investment is needed to increase the number of trains, improve infrastructure, and meet predictable seasonal demands. However, this becomes difficult in a neo-liberal framework that sets strict limits on fiscal deficits and discourages large-scale public spending.
• Limited government investment – The Indian state is often unable to expand public services because fiscal deficit rules prevent substantial investment.
• Although higher spending could improve welfare, governments avoid it due to pressure from global financial institutions and credit-rating agencies.
• One way to increase spending without raising the deficit is through greater taxation of the wealthy.
• Economists such as Thomas Piketty have shown that modest taxes on the top 1% could significantly strengthen India’s welfare services.
• However, such taxation is politically difficult because it is opposed by both domestic elites and global capital.
• As a result, public services remain underfunded despite being essential.
• Effects of monopolies – If India’s aviation market were genuinely competitive, the cancellation of one airline’s flights would not have caused such severe disruption.
• Other airlines would have replaced the cancelled flights and stabilised prices.
• However, IndiGo’s near-monopoly status meant that its withdrawal affected the entire market.
• This situation reflects a broader global trend. In the United States, supply disruptions during Joe Biden’s presidency contributed to high inflation.
• Large corporations used their pricing power to increase prices far beyond their cost increases.
• These examples show that flexible pricing only works in a truly competitive market, and such competition can exist only when governments enforce strong anti-monopoly rules.
• Outcomes of the Neo-Liberal Model – Although the railway and aviation crises appear different, both are outcomes of India’s neo-liberal economic model.
• This model restricts the state’s ability to invest in essential services but encourages the deregulation of private markets.
• Because the state is constrained by fiscal deficit rules, it cannot invest adequately in transport infrastructure.
• Because private markets are deregulated, monopolies grow unchecked and gain enormous pricing power.
• The result is predictable:
  Public services become overcrowded and under-funded, and private services become expensive and unreliable.
• Failure of Public and private sectors – The overcrowding of trains and the flight cancellations reveal a dual failure:
  • Public Sector Failure – It is caused by low investment, not low prices.
  • Private Sector Failure – It is caused by monopoly power, not regulation.
• In both cases, ordinary citizens bear the burden. Travellers either endure unsafe and overcrowded conditions or face extremely high prices when private monopolies reduce supply.

What lies ahead?

• India needs a balanced economic approach that strengthens the public sector while regulating private monopolies.
• Welfare cannot be achieved by simply keeping public prices low or by allowing private markets to operate without oversight. Real welfare requires:
  • Adequate public investment in infrastructure.
  • Fair taxation of high-income groups.
  • Strong anti-monopoly regulations.
  • A competitive marketplace that protects consumers.
• Without such reforms, India will continue to face repeated transport crises.
• Unless India strengthens its public infrastructure and prevents the rise of monopolies, such crises will continue to repeat.

Reference

The Hindu| Transport Crises in India