Though the government’s suspicion of the markets is evident from the manner in which price controls are being increased in the pharmaceuticals space and are becoming more widespread in agriculture—including on GM cotton seeds—the latest victims are likely to be the restaurant business for failing to pass on cuts in the GST rates to consumers. And, going by what the government is saying, FMCG firms are likely to be next—and now that an Anti-Profiteering Authority has been set up, this will be done in a fairly systematic manner. While restaurants argue that they cannot pass on the ‘benefits’ of a lower GST given the denial of input tax credit (ITC) to them—they were denied ITC benefits in the last GST Council meeting which lowered the GST on restaurants to 5%—the government doesn’t believe them. Given that, in a competitive market, restaurants would try to cut prices wherever they can to attract customers, it is odd that the government doesn’t believe the restaurants — if a McDonald’s can cut prices in the manner it does, why wouldn’t it pass on tax cuts? After all, as Adam Smith said in his path-breaking treatise, “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest”.
Some months ago, roads minister Nitin Gadkari got the auto industry’s gander up with his petrol-diesel-waalon-ka-to-band-bajana-hai comment, and the industry is worried that the government may bring forward emission norms again since fuel norms have just been tightened. While Gadkari was trying to do his bit for the environment, he needn’t worry too much. Tesla’s new truck, just unveiled by Elon Musk, boasts of a 800-km-per-charge range and a lower lifetime costs than diesel. That, more than any government regulation, should gladden the hearts of environmentalists and send a shudder down the collective spines of truck manufacturers — the trucking industry accounts for 50-60% of all fuel consumption, and diesel at that. How fast Tata Motors will react to this is not certain, but the global pace of electrification of the passenger car market has already got Maruti Suzuki to announce its electric car initiative in collaboration with Toyota and the car is expected to hit the market by 2020—even if Gadkari had even been able to implement his plan, it is unlikely he would have mandated introducing electric cars by 2020.
The markets—and technology is an integral part of that—deliver wondrous results and the government would do well to keep the faith. Some years ago, regulators were worried about the domination by Microsoft’s Internet Explorer since it was bundled with PCs—and then came Chrome which completely knocked the Explorer out. And while Google may be the top company in so many fields, it simply hasn’t been able to make a dent into WhatsApp—but that doesn’t mean someone else won’t. Though Indian telecom prices were always very low even pre-RJio, many argued that SMS tariffs were too high compared to their cost. This was true, but newspapers like this one justified letting it be since SMS profits were used to subsidise below-cost calling plans. But even before the regulator could make up its mind on the issue, WhatsApp destroyed the SMS market.
International call rates too started to fall when, with better bandwidth and speeds, people started opting for free WhatsApp calls even though the voice quality is better in a traditional call. There is no doubt RJio disrupted the market dramatically with its pay-for-data-voice-free model, but the market was, in any case, moving towards this since those with smart-phones were switching to WhatsApp for messaging and international/national calls. If RJio disrupted the market, it was because its offering was below-cost and because the older telcos like Bharti Airtel and Vodafone were slow in responding to the WhatApp-type change—to be fair, though, low-cost VoLTE phones were not a reality at that point either, though it can be argued the telcos needed to speed that process through co-development of the type RJio did with technology providers like Qualcomm. The important point, though, is that robust markets provided the solution, not regulation or other forms of government control.
Recall, in this context, the fairly expensive mobile phones even a decade ago, being made by a handful of firms. Two things then happened—the market erupted and Qualcomm came in; to an extent, the former was also the result of the latter. Qualcomm’s R&D and licensing model ensured a much larger number of firms produced mobile phones once they paid it royalty—in the past, a handful of companies involved in producing phones cross-licensed technology to one another, but this changed once everyone had access to Qualcomm’s technology (goo.gl/E4A7gG). As a result, while the market has the pricey Apples, it also has low-cost Karbonns and no one complains about the customer getting rooked since she is free to buy whatever she wants.
Given the role of markets and technology—the two are closely interlinked—it is odd that the government still wants to impose the kind of price controls it does. While there is enough competition in, for instance, pharma to ensure medicines in India are probably the cheapest globally, price controls are proving counter-productive, as also in the agriculture space. The desire to be seen to be doing something for the poor and the middle classes, though, has blinded the government to this.