Prices vs rationing

There’s one thing common between Delhi’s odd-even scheme and parallel ban on surge pricing by Uber, Ola—lack of faith in the price system


There is one thing common between the second experiment in New Delhi with the odd-even scheme of road rationing and the parallel ban on surge pricing by taxi aggregators such as Uber—a lack of faith in the price system. Basic economics tells us that higher prices bring down demand for a scarce good on the one hand and create new supplies on the other. Congestion pricing has worked well in cities such as London while surge pricing pulls taxis into the market at peak hours.

In New Delhi, forcing people to keep cars at home has increased the demand for taxis—and hence surge fares. One set of restrictions has led to another. It is very similar to the way industrial controls fed on each other to eventually strangle the Indian economy.

We doubt a rationing rule such as odd-even will be more efficient than congestion pricing in the long run. If non-market solutions have to be tried out, there is an obvious one: better public transport.