Mixed economic system — practice question

Study the source material carefully before you answer Question 1. Source material: India’s airline industry Air India belongs to the Indian government. As new firms have entered India’s air travel market, Air India has become less able to choose the price. This state-owned business competes not only with other airlines but also with other transport options, including trains and ships. In 2017, the Indian government attempted, but failed, to sell Air India to the private sector. If the sale had succeeded, it would have brought in money for the Indian government and could have improved the airline’s efficiency. It is forecast that by 2025 India will have the third-largest airline industry. Expansion in the industry may influence India’s current account position in its balance of payments. Table 1.1 shows the current account position for India and four other countries. An increase in both the number of routes operated and the standard of the passenger experience may raise the number of tourists going to India. A bigger Indian airline industry is likely to make it easier for people and goods to move into and out of India. This could draw in more multinational companies (MNCs) and lower firms’ production costs. India’s air travel market faces several problems. India has the highest airline fuel tax in Asia. Some economists argue that this should be raised again to increase tax revenue and cut market failure. Airlines’ other costs are rising, but it is hard for them to put prices up. This is because India’s air passengers are among the least price-sensitive in the world. Some airlines prevent their costs from rising further by improving staff training, introducing new technology and improving pilots’ working conditions. Airlines’ ability to recruit pilots is affected, among other things, by the quality of education and by other job opportunities.