New Guidelines For Cab Aggregators Like Ola And Uber Are Regressive, Will Hurt All Stakeholders From Consumers To Drivers To Aggregators Themselves

There is something about the license-permit-raj mentality that refuses to get a burial even three decades after the government of India officially decided to dump it. The ‘good intentions of governments’, perhaps the biggest contributor of bad policies in the country, continues to pave one road after another to hell.

Every success on the economic front in India shows that light-regulations and little interference of the government are the sure shot ways of unleashing the full potential of any sector of the economy. This is why one must welcome the government’s latest farm reforms which seek to liberalise agriculture from its own counter-productive rules which reduced this sector to one of the most unproductive ones.

But one wonders how the same government which understands the ill-effects of its bad policies in agriculture can forget these lessons immediately when trying to regulate the mobile app-based cab aggregator business which is growing fast but is still very much in infancy.

The latest guidelines released by the Union Ministry of Road Transport and Highways are regressive.

This is surprising not only because of the pro-business, pro-entrepreneur, pro innovation rhetoric of the Modi government but also because its earlier guidelines in 2016 were quite sensible at least on major issues of contention.

Now, these are guidelines not rules and the text of ‘Motor Vehicle Aggregator Guidelines 2020’ states that these are issued as “guiding framework for State Governments, to consider for issuance of licenses to transport aggregators and for the purposes of regulating the business conducted by such aggregators’.

Section 93 of the Motor Vehicle Act of 1988 also clearly states that ‘the State Government may follow such guidelines as may be issued by the Central Government’ while issuing the license to an aggregate.

The implementation is up to states who can choose to be liberal in their outlook but if the record of the past five years is any indication (Maharashtra, Karnataka to name a few) then we can be sure that state governments will be on the harsher side of these regressive guidelines of the Centre. Rather than rubbing its own liberal outlook on the states, it seems that the states have rubbed off their business-intolerant mores on it.

Let’s take a look at some of the problematic guidelines.

First, ‘surge pricing’ has been the bone of contention between governments and cab aggregators since the very beginning. While many accuse companies like Ola and Uber of fleecing the customers via such mechanism, the aggregators argue that it serves a useful purpose - regulating demand and supply of taxis in any given area of operation.

As this Swarajya piece argues, surge pricing “increases market efficiency (by serving those commuters in areas where the supply of taxis at a particular point of time is low) without any specific government requirement for them to do so. Surge pricing is a very efficient way to get drivers to ply in those areas where demand outpaces supply.”

Now, in 2016, the government’s guidelines struck a decent balance when they proposed that prices could rise to three times the minimum fare during daytime and four times between midnight and 5 am.

However, the latest notification states that the ‘Aggregator shall be permitted to charge a fare 50% lower than the base fare and a maximum surge pricing of 1.5 times the base fare’.

The government may think that it is stopping these companies from charging high rates, but what it is effectively doing is making sure that taxis are not available at ungodly hours even if there are people willing to pay for it.

That’s the side effect of socialism - limited resources don’t magically become available to everyone at lower prices as is usually the intention but by punishing the suppliers of even the limited resources, socialism makes them leave thereby increasing the prices even higher and available to even fewer folks.

Setting 1.5x as the upper limit was bad enough, but even this limit has actually been imposed on not the fare set by Ola or Uber but by the government, which takes us to the second point.

Second, more regressive than cap on surge pricing is the guideline which states that it’s not the cab aggregators who will set their base price but that the government will do it for them. ‘The city taxi fare indexed by Wpl for the current year shall be the base fare chargeable to customers availing Aggregator service,’ reads the notification.

Additionally, the guideline says that the ‘base minimum fare chargeable to customers availing Aggregator services shall be, for a minimum of 3 kilometers to compensate for dead mileage and distance travelled and fuel utilized for picking up the customers.’ And for those cities which do not have the base fare fixed by the government, Rs 25/Rs 30 will be charged.

This aspect has been brought in to protect the taxi and auto unions which have been under the onslaught of cab aggregators. In most scenarios, the charges by Ola and Uber are lower than the base prices of city taxis. Now, they will be forced to raise it. The burden will of course be borne by the customers. Just like surge pricing is most harmful to customers, so is this government-mandated base fare to drivers and aggregators.

Third, cab aggregators have been stating from day one that they are mere intermediaries and facilitators and drivers contracting with them aren’t their employees. The business model is certainly built that way. However, in the latest guidelines, the government has unilaterally decided to change the relationship between drivers and aggregators from that of contractors to employer-employee.

Guidelines state that every aggregator will have to set up driving test facility with a simulator to test the driving ability of the concerned drivers with respect to the vehicle to be on boarded (or outsource it to an authorised third party), and conduct an induction training programme for all its drivers.

If a person who wants to drive in partnership with Ola/Uber and has a driving license, why does he need to go through a separate 30 hours training? Isn’t that the whole point of ‘driving license’ - to certify if the person is fit to drive?

Not only the aggregators will have to conduct such training programmes for new drivers but also for all the existing drivers as well. This financial burden (to deploy resources in every part of the country) is going to pinch the aggregators but more importantly, it’s quite an unnecessary exercise.

Moreover, inserting the condition of ‘police verification’ as prerequisite to on-boarding a driver doesn’t do much for security but only adds an extra layer of opportunity for corruption. I wish it was different but that’s sadly the way police operates in India.

That’s not all. The guidelines mandate that all cab aggregators will have to ensure certain health insurance for each driver integrated with it ‘for an amount not less than Rs. 5 Lakhs with base year 2020-21 and increased by 5% each year.’ Additionally, they will have to ensure a term insurance ‘for an amount not less than Rs.10 lakhs with base year 2020-21 and increase by 5% each year.’

This is crazy. Imagine, if the government tomorrow said that Youtube will have to give health insurance to all its contributing users earning money from Adsense. This is similar.

Most drivers partner with more than one aggregator and use their apps daily. Does that make them eligible for insurance from all the aggregators? What about those who log in into Ola/Uber for three-fours to do part-time driving to earn extra bucks - they will now be eligible for insurance?

Fourth, another dangerous and counterproductive regulation is government determining and fixing how the fare will be divided between two contracting, consenting adults. The guideline states that ‘the Driver of a vehicle integrated with the Aggregator shall receive at teast 80% of the fare on each ride and the remaining charges for each ride shall be received by the Aggregator.’

This is outrageous not only because the government doesn’t do such intervention in any kind of other business, but also because it didn’t have any problem when the aggregators were showering monies on drivers in the beginning. They were given huge proportion of fare and the aggregators piled up losses in order to establish themselves. Now, when the time has come to recover those early investments, the government has swooped in to play spoilsport.

Not only that, the guidelines have also recommended a nice way for the State Governments to take its own hafta money from this booming business.

The regulations state that the state governments may ‘direct 2% over and above the fare towards the state exchequer for amenities and programmes related for Aggregator operated vehicles, which have been helpful in reducing traffic congestion to a great extent and subsequently reducing pollution.’ That’s some clever way to steal extra money over and above the assorted taxes to finance already running government schemes.

Fifth, the guidelines also include some totally wacky ideas. For instance, it asks aggregators to ensure that the drivers shall not be logged in for an aggregate of twelve hours on a calendar day and if these drivers are engaged with more than one aggregator then it asks them to develop a mechanism on their respective app to ensure that drivers do not drive beyond a cumulative period of 12 hours.’

There is instant confusion here. First sentence says they should not be logged in for more than 12 hours but the second one says that they should not drive beyond 12 hours a day. Both are totally different things.

A driver can be logged in for 20 hours per day and may get an opportunity to drive for say, only 10 hours a day. And it’s not clear how all aggregators will devise a mechanism to check the driver’s log in time across all apps without seriously jeopardising their own privacy and that of the drivers.

Now the rationale behind this move is to give enough rest to drivers so that accidents can be avoided. The gesture is noble and even if the government can’t possibly regulate sleep of truck drivers who are death traps on Indian roads especially at midnight, it’s good to regulate whoever you can if the tech is there. But the 12-hour window is too restrictive. Such compassion from the government may be too costly for poor drivers who have taken loans and bought cars to ply with the aggregators.

Drivers will simply strike offline deals with customers they get via Uber/Ola, log off and keep driving for as many hours as they want. The needs of drivers decides how many hours they will drive. The government regulation can’t.

Another ridiculous aspect that has been included is the directive to ensure that drivers ply ‘the vehicle on the route assigned on the App and in non-compliance of the same, developing a mechanism wherein the app device indicates the fault to the Driver and the control room of the Aggregator immediately communicates with the Driver with regard to the same.’

The GPS route on the app (which is nothing but Google maps) misleads drivers daily. To put such a thing into guideline shows that the writers of our policies have neither ever driven on Indian roads nor have they taken a cab in their life and are too used to the comfort of chauffeur driven cars to understand the reality on the ground.

Probably, the only good thing in these guidelines is that from now on, the aggregators and drivers will also be charged for arbitrary cancellation of a booking subsequent to accepting a ride on the App. Earlier, only customers were charged such a penalty. Of course, in line with the sentiment of the overall theme of guidelines, it has been fixed at ‘10% of the total fare not exceeding Rs 100’ which is quite reasonable.

One hopes that the Centre realises its mistake soon, rolls back these regressive guidelines and comes back with regulations that promote innovation and progress in app based aggregator space rather than stifling it. As this Swarajya article argues, ‘the end objective for regulation should be compliance, not control, and certainly not discretionary control. The lawmakers cannot and should not race against the young engineers. It will be a losing battle.’