Ola, Uber In Trouble Again As NGOs File Suit Seeking Damages Close To 9000 Crore

In April 2016, Magic Sewa filed a writ petition in the Delhi High Court alleging that the Delhi International Airport Limited (DIAL) and the Airports Authority of India (AAI) were discriminating against new taxi operators, like itself, by charging an entry fee of Rs 150 while favouring Easy Cabs, Meru Cabs and Mega Taxi by exempting them from such a fee. In August, the court upheld the AAI’s and DIAL’s right to continue the practice as a tender process had been followed to grant such privileges to the three taxi companies. Neither the law nor the court was on the side of Magic Sewa and it’s founder Rakesh Agarwal in this case.

Meanwhile, Rakesh Agarwal also engaged in a legal campaign to stop what he calls “discriminatory practices” of Uber and Ola. Here is what he said to Firstpost in an interview: “We will ask for the ouster of Ola and Uber from Delhi. Their services should be stopped and they should be prosecuted.”

Magic Sewa, along with other traditional taxi companies, first approached the Delhi High Court and, on 11 August, secured a ban on surge pricing by taxi aggregators—Uber and Ola— untill the Central government’s committee was appointed to draft a model scheme. The order came into force on 22 August.

Rakesh Agarwal went back to the Delhi High Court on 30 August, claiming that Uber and Ola were violating the 11 August order which had banned surge pricing. The case will next come up for hearing on 21 November. Before we get to know what comes out of that, Rakesh Agarwal (an AAP alumni) teamed up with suspended AAP MLA Col. Devinder Sehrawat and “Social Activist” Anuj Aggarwal to file a class action suit in the National Consumer Disputes Redressal Forum (NCDRC) against Uber and Ola. Through this suit, they demand that Uber and Ola pay back Rs 9,239 crore to customers who were able to get taxis through surge pricing.

The basis of this lawsuit is a claim that Ola and Uber are violating Section 67 of the Central Motor Vehicles Act of 1988 by charging the above notified amount via surge pricing and “uneconomic competition” via incentives to drivers. While the lawsuit appears to be one with strong legal grounds (unlike the airport case), Rakesh and Co have arrived at the 9,239 crore figure by making assumptions which should be considered inflated. Let us first examine the 9,329 crore figure.

One of the assumptions that they have taken is that each vehicle makes 10 trips everyday. Those who ride in Uber or Ola regularly and talk to the drivers would know that this isn’t the case. More so, if the correct figure was anywhere close to 10 trips per day, Ola and Uber wouldn’t be offering huge cash incentives to drivers like Rs 2500 for seven bookings (in the case of Ola) and “Rs 1000 ka MBG : Rs 500 ke kiraye pe”. To any observer, such cash incentives indicate that the average number of trips per vehicle is way lower than the 10 trips per vehicle, per day assumption.

The lawsuit also assumes that 30 percent of the trips had surge pricing. Again, this too appears to be inflated. So is the assumption that the average fleet size over a three- year period is 2,50,000— given that Ola’s fleet, in 2016, in one of it’s biggest markets (Delhi), after more than four years of phenomenal growth is 28,000. One shouldn’t expect the actual average fleet size to be over 1,00,000 cars. Rakesh and Co conveniently use Rs 12.50 as the official price mandated by the NCT of Delhi while according to the Delhi Traffic Police, it is Rs 25 for the first kilometre and Rs 16 per km for AC taxis.

The Press Release by the petitioners proclaimed— “Class Action Lawsuit for Rs 9,239 Crore filed against Uber-Ola in National Consumer Commission – Kejriwal ki Ola Uber se Setting”. It is, indeed, entertaining to see Kejriwal’s tactics being used against him by his opponents. This leads me to the conclusion that the assumptions were taken in a manner that the arithmetic would produce an outrageous figure to use for press coverage, and that the important part of the lawsuit isn’t the outrageous amount of money that it demands as a refund but the proof given by the petitioners of surge pricing after 22 August.

Rakesh and Co further claim: “It is only a matter of time before India’s transport sector is captured and controlled by a 100 percent foreign-owned Uber which will lease vehicles to the drivers’ who will be reduced to the status of bonded labour”. It’s as if one is reading The Hindu’s archives from the 1970s. They make such a claim based on an assumption that a China-like deal will take place in India and Uber will buy or merge with Ola to become a monopoly and start harassing drivers. They ignore the fact that even Uber’s resources are not endless and the price war and wealth transfer to drivers is already reducing.

Moreover, even if one of the two companies achieves a monopoly position in the taxi aggregator industry, their behaviour will be constantly policed by competitors from other forms of transportation. Like, premium bus aggregators like ZipGo, threat of entry of new competitors with more cash like Reliance’s Jio and, most of all, business sense in not operating in a manner that would invite more regulatory interference. (One wonders if we can file a case against Google Chrome saying that they have a monopoly in the browser business).

The lawsuit, despite the faulty math, is bad news for Uber, Ola and consumers at large.

Even the most ardent supporters of Uber and Ola (which includes this writer) have to admit that they have violated the Delhi High Court’s 11 Aug order banning surge. They are clearly in violation of the Motor Vehicles Act. Given how the Government of India recently notified rules allowing class action against companies, Uber and Ola will probably be facing more such lawsuits from busybodies all over India. Uber and Ola will, in all probability, stop or massively reduce operations in cities or localities where they have low margins. This is bound to have an impact on the long-term sustainability of these apps given that they are platform markets which profit only if they expand to reach an optimal size.

The best solution to the mess that is taxi regulation in India would not only be to desist from introducing price regulation and other cumbersome and unnecessary requirements for taxi aggregators like Uber and Ola but also to repeal the price regulation and other cumbersome and unnecessary requirements already in place for traditional taxi firms. It is such regulations which make traditional taxi services uncompetitive in the first place. Bringing about regulatory parity by imposing these regulations on taxi aggregators, instead of repealing them for everyone, is counterproductive and utterly moronic.