Citizen initiatives like ‘meter jam,’ targeting auto drivers have managed to target the wrong side of the problem. Yes, many of us have had an altercation with an auto driver regarding the fare to a particular destination. We have accused the driver of charging beyond the meter. But, have we paused to wonder why this is happening day after day?
If a market is working at true equilibrium, the price will be set such that all demand is met by the right amount of supply. Usually, in an unregulated market, market forces tend to pull the price to equilibrium leading to bliss all around.
Unfortunately, the Indian market space is far from usual and government intervention has imposed a price ceiling leading the market to operate far from its optimum equilibrium. This implies that the price set is far too low for auto drivers to want to take on passengers, leaving citizens facing charges that are above the meter price.
Good intention backfires
So why is price control bad? Now, the obvious response when proposed with the facts is that surely, lower prices must be a good thing for the consumer. It is here where we must take a detour and talk about the Zimbabwean economy. President Mugabe implemented strict price ceilings for most food items in Zimbabwe.
Sadly, the market reality is that at such cheap, regulated prices, the producers were unwilling to sell such goods as it is simply not profitable. This led to a drastic shortage of food, which led to mass starvation and copious amounts of black market hoarding.
In a far less drastic fashion, state governments across India have done the exact same thing in the autorickshaw sector as well as others — a price ceiling has limited the supply of autos on the roads. This has prevented auto drivers from running sustainable profits and left us consumers perennially unhappy.
To add to this, the procedure to get a permit for an auto is a tortuous affair, leading to a quasi monopoly-like set up where new firms will find an obvious roadblock in entering the market, not that they want to that with such depressed prices.
We think of the khaki clad drivers in uniformly painted autos as being some public sector enterprise. In essence they are entrepreneurs seeking to make a decent profit like any other business. While auto drivers are not without blame, to lay all our ills at their door is not in order.
They are simply responding to the current market conditions. Most auto drivers have rented their autos on loans and are expected to sustain themselves on fares that are far below the revenue they need to live, save and pay off their debt. The system they work in is flawed and auto drivers are really the victims, not the culprits.
Well-intentioned programmes such as ‘meter jam’ fail to understand the true nature of the problem. Auto drivers are just as much victims as citizens having to pay above the meter prices. The real culprit here is the price control of the state and the barriers to entry informally set up by the current private owners of the auto rickshaw businesses.
So how does the contour of a potential solution look like? Firstly, the government should reduce the lengthy procedure required to obtain a permit for autos. Secondly, loans on reasonable terms should be made available to auto drivers. Thirdly, and perhaps most importantly, the government should set a maximum price at which the fare is to be calculated that is higher than the present price and allows the drivers to take fares below that price as well.
This allows room for innovation and let entrepreneurs enter the market if they feel they can run autos at lesser prices and still generate revenue in other ways (eg: auto rickshaw advertising). This is the impetus the auto industry needs. If properly implemented, probably there would be no need for drives such as ‘meter jam’ and productivity stifling strikes by auto drivers.