India's transport sector faced significant strains in late 2024, with overcrowded trains to Bihar during festivals and elections, and widespread Indigo flight cancellations in December. These incidents highlight the impacts of demand and supply shocks in a regulated economy. Experts argue for increased government investment to balance affordability and capacity, rather than relying solely on price adjustments or deregulation.
In October and November 2024, India's railway system grappled with a surge in demand as migrants headed to Bihar for Chhath Puja and the state elections. With limited train availability, passengers endured hazardous conditions in overcrowded unreserved compartments, underscoring the challenges of fixed pricing in public services.
This situation exemplifies a demand shock, where steady supply meets sudden increases in need. Economic principles suggest that allowing prices to rise could equilibrate demand and supply, though it might exclude lower-income travelers. However, keeping fares low for essential services like rail travel is crucial for social welfare, provided the government invests adequately to expand capacity. Critics of public pricing overlook this need for supply growth over mere fare hikes.
Neoliberal constraints limit fiscal spending through deficit caps, hindering infrastructure upgrades. One proposed solution involves taxing the wealthiest 1% to fund welfare enhancements, as evidenced by research from economist Thomas Piketty. Yet, such measures face resistance from capital interests.
Contrastingly, the December Indigo crisis represented a supply shock. The airline canceled numerous flights due to regulatory violations, stranding passengers and driving up fares amid Indigo's dominant market position. In a competitive landscape, such disruptions would have less impact, but monopolistic tendencies amplified the fallout, leading to consumer losses and inflated costs.
These events reveal broader issues in India's economic model, which restricts state intervention while promoting deregulation. Without curbing monopolies and bolstering public services, similar disruptions loom. As Rahul Menon, associate professor at O.P. Jindal Global University, notes, both crises stem from prioritizing private interests over public welfare, eroding service reliability.