Herald: Goa’s free market economy

Goa’s free market economy

25 Jan 2019 04:41am IST
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25 Jan 2019 04:41am IST

Finally, the beginning of this year saw some Goan lambs make a rare attempt to take on politicians and speak their mind. Can’t say it was a feeble effort, because the speakers in question were pretty blunt in their talk. Yes, this has reference to the statements made by some members of the Travel and Tourism Association (TTAG) that were reacting to the utterances made by the tourism minister on capping of room rates of the hotel industry in response to the fall in the tourist numbers. The broad message being, the tourism minister should mind his own business and not interfere in theirs. 

But what made the tourism minister interfere in the industry’s business? Why did he say what he said? The travel industry instead of getting at him at the first opportunity, might want to ponder on the above scenario. Apparently, he was just following his predecessors and the unwritten rule followed in Goa, since we allow politicians to have their finger in every possible pie. On expected lines, because the travel industry itself has allowed many of its members to hobnob with politicians to get personal and petty favours, so as to increase their market share or for authorities to turn a blind eye on the illegalities in the construction of their properties. The fact that politicians are invited to inaugurate their business establishments only goes to show that the travel industry cannot manage their business in a professional manner and depends on hand holding by politicians as part of their business plan. So why suddenly target the present tourism minister? 

Let’s give the benefit of doubt to the people that took on the minister. It is possible they want to shatter the shackles and therefore spoke, so as to break free from the clutches of politicians. If so, then we can call it a better-late-than-never start, but if these utterances came at the behest of the opposition ‘Pappu’s Party and his Corrupt Charlies’ then the noise is not going to serve any purpose to the industry. Instead the issue might just get them elected to yet another term in office, leaving the industry challenges unresolved.

So before the travel industry decides to bulldoze the tourism minister, it first needs to get their house in order. They must decide if they want to create an atmosphere that will allow its members to do business in a free, fair and competitive manner. By allowing some industry players to socialise with politicians allows that player to take undue advantage of the politician’s position and makes a mockery of fair play for market players wanting to compete. They need to address this nexus in a sincere manner and then demand politicians to stay out of their business. 

Once you keep politicians out of the loop, maybe, just maybe, we might be able to identify authentic problems the travel industry faces at the moment. One such genuine challenge is the supply side shock that has been created in the system, by the advent of excess budget hotels and private residences entering the tourist room inventory. This is basic market disruption, underway all over the world and Goa being no exception. On first signs of slowdown, you don’t panic and run to the government for lack of customers. You evolve and stay relevant.

There will be temptation to lobby with the government to create hindrances in the form of taxes or regulations on Goans letting their homes to tourists, but that will be artificial tinkering of supply and not fair to Goans who are only now beginning to figure out the fruits of tourism, but are way behind with a negligible market share. 

Warren Buffet’s famously quoted once: “A strong market is like a high tide: Everyone can make money, but it’s only when the tide goes out that you discover who’s been swimming naked”. In a free market economy it’s all about demand and supply. You don’t force the government to take decisions to artificially keep the demand elevated so that the inefficient survive under artificial market conditions. The tourism economy of Goa is heated, it needs to cool off. It needs demand destruction, so that those that opened shop during the high tide can now close and those that remain efficient survive. This is the basic premise of a free market economy, very important for tourism to survive on a sustainable manner.

As far as the tourism minister is concerned, he probably needs a crash course on how free markets operate. The last time the Indian Government tried capping of air fares; it made sure the airline industry got into a terrible mess. Not only are they in doldrums but on the verge of folding up one by one. Buy an online airline ticket and find out for yourself the breakup of the airline revenue and the taxes collected by the government which form part of the ticket price. While nobody is willing to tell the government that their taxes are killing the industry, the government is more than willing to arm twist the airlines into capping of fares. 

Free markets operate best when the rules are kept simple and clearly defined. An industry body should make sure rules are not made for one section of the industry at the cost of others. It must keep in mind that an ideal government’s responsibility should be towards its citizen, so when you ask for sops or change of rules to suit your industry, make sure it does not come in conflict with the citizens. For years now Goans have undergone demand shock inflation on the local food they consume due to tourism. A little slowdown in tourist numbers might just make Goan life a little more bearable and affordable. Just because successive governments have failed to balance their budgets, does not mean tourism becomes an invincible part of government finances.

(The author is a business consultant)
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