Rokda: How Baniyas Do Business

In Rokda: How Baniyas Do Business, financial journalist Nikhil Inamdar tells the story of five companies, and the entrepreneurs who established and consolidated them. The Baniya identity is the prism through which Inamdar analyses their successes and failures, to figure why this community “held hegemony on Indian enterprise, and continue to remain such a dominating force in the orb of commerce”.  The following excerpts are about the odds and challenges faced by a business that profited from the opportunities provided by economic liberalisation:

The Millionaire Cabbie

Neeraj Gupta – Meru Cabs

“…Within six months of Meru’s launch in Mumbai, the brand also took its next big leap. Neeraj got a call from the GMR group which was getting ready to unveil its swanky new international airport in Hyderabad. They had heard of Meru’s success in Mumbai and approached him with a proposal to operate 400 taxis to and from the airport in Shamshabad. A comfortable, clean cab service was a must because the airport was 25 kilometers away from the city. Soon enough, the company was crossing one milestone after another. By the end of 2008, it launched in Delhi and had an invitation to start operations in Bengaluru. A while later it extended its services in Jaipur, Ahmedabad and Chennai as well.

The early rise of Meru was meteoric. But alas, it wasn’t too long before Gupta would have to face up to a barrage of challenges from all ends. Even as consumer demand was taking the brand from strength to strength, the operating environment was becoming increasingly tougher. A few things happened simultaneously even as the company was growing at an intense pace in the first two years.

The funding aspect, which ironically is the trickiest bit for any start up or entrepreneur was taken care of pretty quickly in the case of Gupta with IVF coming on board. So was the course of going through the bidding process where the company got extremely lucky as a result of little or no competition. The big speed bump that needed to be crossed was obtaining permits. The taxi license had come with a rider that the contractor will have to acquire permits from existing car drivers.

It is here that Gupta’s core strengths as a traditional, rooted entrepreneur – the understanding of local processes and procedures, and an ability to get things done by plotting a course through tough government bureaucracy, came to good use. If you are to drive a metered taxi in Mumbai, you need to hold a taxi badge and a permit, which is very hard to come by. In 1997 the Bombay High Court had frozen the issuance of new permits due to pollution control and traffic management rules and also because it felt there were already too many cabs on the roads. There were roughly 1.5 lakh taxi badge holders but permits for only 60,000 black and yellow cabs, which meant the demand for them was very high.

V-Link Travel Solutions, which was the registered new holding company incorporated to start Meru’s B2C taxi business, managed to obtain 200-300 of these almost immediately in order to commence operations.

‘We appointed our entire company machinery to get behind permit holders. The usual practice for the owners of these permits was to lease them out for five years. But we offered to lock them in for a period of 20 years. Permit holders were only too happy to enter into a longer tenure agreement. In a bid to lure them, they were paid four times the money which was also a big added incentive,’ Gupta explains.

Over the next two years, as the company expanded, they managed to get hold of as many as 2,000 permits. Nearly 1500 of those were obtained by asking the Government of Maharashtra to grant them the use of dead or lapsed permits – which are basically those that are not in use. This meant getting teams to sit across RTO offices in the city and making a list of the names of the names and addresses of people who held these prized but dormant cards. Over months of hard work Gupta and his team built a database which revealed that there were as many as 15,000 permits not in use. Once again large teams were dispatched to each and every address in the file to try and persuade permit holders to part with their licenses. In no time, they managed to get hold of 1400-1500 permits. It was a unique and ingenious way of navigating a rather peculiar problem.

But this victory proved only to be a temporary breather.

DEFYING ALL ODDS

The politicization of the taxi permit issue in subsequent years grew to be the single biggest constraining factor for Meru in Mumbai. Meru’s diversified presence helped it hedge its overall business and sail on. Things would have been much messier had they been a one city phenomenon, but that was little solace.

Growth flattened out at 2000 cars, and then saw a reversal for some years despite demand for Meru’s services being very high. The sole reason for this—lack of availability of drivers holding valid permits. As if the environment wasn’t bad enough, in 2010 the Maharashtra government decided to deal a further blow to radio cabs by giving new taxi permits only to those who could provide a domicile certificate proving that they had lived in Mumbai for more than 15 years and could read and write Marathi. This was done in the midst of a violent campaign launched by Maharashtra Navnirman Sena chief Raj Thackeray against North Indian migrants in the state.

‘Most taxi drivers in Mumbai are from Uttar Pradesh, and the locals do not want to drive cabs as they find better jobs. This politically motivated rule made it very difficult to find drivers not just for the fleet cabs, but even for the regular cabs,’ the Bombay Taximen’s association secretary A. L. Quadros complains.

Adds Neeraj, ‘Across the globe, whether it is in New York, London, or Singapore, the cab drivers are almost always migrants. Such has been the case in Mumbai as well for the longest time. But the politics of regionalism superseded the politics of development, crippling Meru’s prospects by 2010.’

These rules coupled with the onslaught of competition from new players like Mega Cabs, Ola Cabs, Tab Cab and others meant that the number of Meru taxis on Mumbai’s roads reduced from 2000 between 2009 and 2012 to roughly 1500 by 2014. This is not because the spoils of the market had to be shared, but because poaching of drivers became common place. By creating an artificial scarcity in permits, politics had completely distorted the market and reduced the availability of drivers.

Worse still, politicians were unionizing with rogue employees who over the years held the company to ransom on more than one occasion. It started with the old guard. The black and yellow taxi drivers were not ready for struggle against this genteel breed of new taxi owners. Dissent began soon after the first lot of taxis were launched in Mumbai, starting with a one-day strike and attempts to block in courts the advent of newer cabs. That failed, so it soon turned to repeated tactics of intimidation over a period—stone pelting, breaking windshields, beating up Meru drivers etc. From time to time the tussles got so ugly that customers were even forced out of cabs by unidentified men on the road.”

Over the next few years this rebellion morphed into driver unions like the Meru Cabs Chalak Sena, backed by political outfits like the Shiv Sena, or the Swabhiman Sanghatna led by the politician Nitish Rane, going on indefinite strikes to extract their pound of flesh. Across other cities like Bangalore and Hyderabad too, drivers protested against supposed coercive tactics by Meru, complaining that the company was seeking very high rentals. Cabs were set ablaze, an ex-CEO was at the receiving end of threatening calls and violent protests became a norm between 2009 and 2013.

In 2013 a prolonged strike was the sixth occasion in the company’s short existence that operations had been brought to a grinding halt by a few errant drivers. It was also perhaps the most crippling one. There were 50 odd incidents of vehicles being damaged and drivers being assaulted. Meru was losing Rs 15 lakh in subscription revenue with each passing day, while drivers were collectively losing Rs 30 lakh in customer revenue.

With things getting progressively worse, Gupta decided to talk tough. Meru not only suspended the services of several drivers, but also launched aggressive press and social media campaigns through front page advertisements in major newspapers, appealing to Mumbaikars for help. ‘On social media, we managed to garner overwhelming support from customers, with more than 5000 people signing up to show their solidarity. Finally after 12 days of negotiations and losses of over a crore, the strike was called off,’ says Gupta, still perturbed by the memory.

Who was to blame?

Was it bad policies or bad politics that was leading to such repeated disruptions? Meru’s business model was simple and straightforward. It paid the driver a subscription—Rs 900-Rs1300 a day—while owning and maintaining the fleet. While it admittedly took the company time to better align the driver-organization relationship— avoiding scenarios where the driver kept all the upside, with Meru assuming the risk, or where the company profiteered unreasonably while the driver remained a mere employee, Neeraj believes that for most part it was just a case of a few bad apples who had been politically instigated to resort to violence. He says a majority of the drivers were and continue to remain supportive of the management for the earning platform they’ve been provided with…”