The success and stumbles of IndiGo and Vodafone offer lessons on regulation and its enforcement

This is a tale of IndiGo in aviation and Vodafone in telecom. Both injected competition into sectors long accustomed to limited choice and uneven service. For a brief period, they expanded our access, brought prices down and forced sluggish incumbents to respond. And then, as so often happens in India, the novelty wore off. The firms grew large, the market structure shifted and, most importantly, policy became the whipping boy for all that went wrong.

IndiGo launched in 2006 as an efficient low-cost air carrier and forced a massive transformation; domestic passenger traffic grew from about 25 million in 2005-06 to over 152 million by 2024. Its obsessive focus on lowering the cost per available seat kilometre compared to full-service rival airlines contributed to a decline in real airfares. IndiGo’s market dominance in recent years has been staggering; today, it controls over 60% of India’s domestic market with a fleet of over 350 aircraft to support its high-frequency network of routes.

Vodafone’s story began earlier. Hutchison Max started operations in 1994 in what was then Bombay. When UK-based Vodafone acquired Hutch in 2007, Indian telecom tariffs were already among the lowest in the world. Vodafone’s innovations such as low-value prepaid packs drove prices steadily down. A phone call that cost more than ₹16 a minute in 1999 fell below ₹1 by 2010.

Eight years later, it merged with Idea Cellular, another success. Tele-density rose from 2.3% in 1999 to nearly 86% by 2024, though this was aided by the 2016 entry of a low-cost player, Reliance Jio. Vodafone was not the largest telecom operator, but it was part of a competitive market equilibrium that delivered the consumer significant value.

Sustaining success, though, is not easy. And institutions often play a major role, especially in licensed market categories. At the heart of IndiGo’s recent regulatory run-in lies a simple question: Did the airline assume that regulatory orders could be ignored because enforcement would be selective? History suggests that many businesses see India as a soft state.

India opened telecom to private competition in the 1990s and such was the market’s attraction that by that decade’s end, many firms were bidding commercially unrealistic sums for licences to enter it. When they predictably failed to meet their obligations, pressure on the regulator to bail them out led to a 1999 grand deal that converted fixed licence fees into a revenue sharing arrangement with the government. Telecom firms survived, but regulatory credibility was weakened.

For IndiGo’s current troubles, the trigger was the regulator’s enforcement of revised flight duty time limitations. These rules, designed to reduce pilot fatigues, had long been announced. IndiGo, however, continued with its tight-schedule model that relied on maximizing aircraft utilization.

But once the new norms kicked in, its system broke down: large-scale flight cancellations followed and airfares surged. The regulator was forced to intervene with capacity cuts and fare controls. This was not ignorance of the new rules, but possibly a strategic response that assumed accommodation by the regulator.

Vodafone’s decline is inseparable from India’s policy and regulatory weaknesses. In 2019, the telecom firm was called upon to pay the government massive dues on the basis of a wider definition of ‘adjusted gross revenues’ than it had been operating on; so heavy was the burden that Vodafone never recovered.

At the other extreme sits IndiGo, which is alleged to have bet that our need for aviation market stability would let it carry on the way it had been operating. The lesson is not that firms act opportunistically—markets assume they will—but that a state that oscillates between indulgence and strictness gives up some of its credibility as a rule enforcer.

If blame is to be assigned, it should be borne as much by faltering businesses as a government that selectively enforces its own rules, since a profit-motivated business will always opt for what suits its interests. Policy, therefore, is not just what translates into rules.

It also includes how those rules are enforced. Regulation means nothing in the absence of a mechanism to uphold it. Observe the current state of the World Trade Organization, a rules-based organization that has unfortunately been stripped of its enforcement power by the US, rendering it toothless as a body.

Meanwhile, the frailty of Indian policy is on full display. Vodafone is now half owned by the government, while IndiGo is so systemically important that the Centre cannot let it fail even if it remains private.

If all this sounds familiar, it is because we have seen versions of it before: liberalization opens the door, private enterprise rushes in, competition flourishes and then market concentration, ironically often as a result of rivalry, creates new fragilities. Markets, as I wrote earlier for Mint, need boundaries; they rarely set limits on their own. In that sense, market self-regulation is a myth propounded by oligarchies in their self-interest.

The author is dean, school of humanities and social sciences and professor of economics, Shiv Nadar University.