New Motor Vehicle Bill Holds Promise To Usher In Achhe Din For Indian Taxi Industry

While india’s cities are supposed to be the harbingers of economic development, our urban transport system is far from perfect. Uber and Ola, the major online taxi aggregator platforms, operate under ambiguous legality, while the drivers attached to these aggregators are harassed (and in some cases even physically assaulted), and some states have even passed illiberal and irrational (yet populist) taxi regulations. The root of the problem can be traced to the statute regulating the use of motor vehicles in India.

The transport regulatory regime in India is a product of the bygone licence raj era. The Motor Vehicles Act of 1988 (MV Act) and the Central Motor Vehicle Rules of 1989 (CMVR) envision a regulatory regime that lays emphasis on licence-issuing by the Regional Transport Authorities and State Transport Authorities.

Since the MV Act is more or less an enabling legislation that allows each state to have its own set of rules and regulations, private players resort to loopholes. This has led to absurd situations, such as when buses registered in Arunachal Pradesh and Nagaland are seen plying in Hyderabad. This is a direct result of the MV Act and its outdated provisions.

While regulations that stifle growth are a feature in almost all sectors in the Indian economy, where the MV Act particularly falls short is with regards to the regulation of online aggregators. The regulation of taxis is under the purview of the central government, but state transport authorities are also allowed to enact rules, as states like Karnataka and Maharashtra have. Both have enacted regressive taxi regulation schemes which stifle market competition and over-regulate these sectors.

There is, however, some good news.

These guidelines will be subsumed by central government regulations, pending the passing of the Motor Vehicles Amendment Bill, 2016. The bill has been passed by the Lok Sabha, and is waiting for the approval of the Rajya Sabha. The bill, while dealing with issues of third party insurance and road safety, also brings about the regulation of aggregators. While the state transport authority is to enact the rules for the aggregator, these have to comply with the guidelines framed by the Centre.

The central government—on the direction of the Delhi High Court—has already framed these guidelines, and they are surprisingly liberal in nature.

The lack of a proper taxi regulation policy has a direct detrimental effect on the urban economy, and also on living conditions in our cities. The loss that is caused due to congestion in our cities for example, is estimated at Rs 60,000 crore a year. Our cities are also extremely polluted—over half of the world’s 20 most polluted cities are in India. Road congestion is also an issue that has been worsened by existing policy. One can just look at the regular traffic snarls in Bengaluru to foresee the future of other metros, as more and more four wheelers enter the roads. Twenty million cars have been added in the last 15 years, compared to seven million in the previous five decades.

We must first understand what the current regulation regime has caused, and how Uber, Ola and other aggregators have changed the market.

Broadly speaking, there are four types of taxi licences:

1. City taxi licence

2. All India tourist transport operator permits

3. Radio taxi permits

4. Rent-a-cab

In most metropolitan cities, there has been an artificial scarcity of city taxi permits, as the regulators have self-imposed a ban on issuing new licences. In fact, in Delhi and Mumbai, not a single new taxi permit has been issued since 1998. This is apparently to reduce “congestion and air pollution” in urban areas, but have had the opposite effect. The artificial scarcity of city taxi permits has caused private car ownership to be indirectly incentivised, while also resulting in taxi drivers who have the all India taxi permit to operate within city limits to circumvent the “ban”.

It is in this scenario that aggregators appeared in the market. They changed the dynamics of the market, resulting in the rapid growth of the aggregators and taxis. The ultimate beneficiary of this has been the consumer. This has upset the equilibrium in the urban transport sector.

For example, in Kochi, autorickhaw drivers regularly overcharge and fleece their customers. This was possible due to the fact that they had a virtual monopoly in the market, and the drivers themselves had an “honour” system where the “honest outsider” would be penalised and excluded from the unions as well as chased away from auto stands. When Uber entered the market, the autorickshaw drivers got the raw end of the deal as their customers switched to the air-conditioned four-wheelers which were now affordable. This led to a situation where open hostilities broke out between the organised auto drivers and the (then) unorganised Uber drivers. There have been several instances where auto drivers assaulted Uber drivers. In response, the Uber drivers have established an union—the All Kerala Online Taxi Drivers Union—to protect their interests. (The union has itself put forward absurd demands to the aggregators, but that is a tale for another day.)

The situation in many other metros is not radically different. The established taxi, radio meter car and autorickshaw services have approached high courts in an effort to shut aggregators down, while the hue and cry raised by the consumer protection groups over surge pricing has led to the regressive regulations that Maharashtra and Karnataka have enacted.

But the new liberal guidelines have appeared as a ray of hope for the taxi industry.

One, it allows for surge pricing, though there is a cap (3x during daytime, and 4x between midnight and 5 am). This by itself is a progressive step, compared to the price caps that were enforced by Maharashtra and Karnataka.

Two, city taxi services which normally ply from point to point may also operate on aggregator platforms. Taxis with all-India tourist permits may also utilise aggregator platforms. The latter is an especially positive step since it more or less removes the ambigous legality within which these taxis operated within cities.

Three, private cars can also, after getting due permissions online, operate under aggregator services. This by itself is huge. The number of four-wheelers has skyrocketed in the country, and most of these cars are privately owned. Privately-owned cars, however, are barely used assets. They are not utilised 90 per cent of the time, and the occupancy rate of a car is a measly 28 per cent—that is, if it is a four-person car, the vehicle on an average carries only 1.15 persons. This, as a Ministry of Road Transport and Highways report notes, is highly unsustainable in the long run.

The cars themselves will be divided into two categories, in consonance with the excise duty on them: those longer than four metres are categorised as “deluxe”, and those upto four metres are categorised as “economy”. The guidelines have recommended that the rates for the deluxe category be completely unregulated, in effect, decided by market dynamics. While this is a rather archaic feature, one hopes that the chinks in the armour will be ironed out by the time these guidelines come into force.

These guidelines in the long run will also disincentvise private car ownership, encourage car pooling and the “sharing economy”. The new liberal policy will ensure an all-round benefit: to the drivers (who are now able to operate within the framework of the law); to the aggregators (who no longer have to fear price caps and other illiberal measures from state governments), as well as the consumer (who benefits from easier passenger convenience).

These guidelines have come rather curiously from a petition filed by radio taxi operators in Delhi, seeking the ban of online aggregator services. The Delhi High Court had directed the Union government to submit the guidelines. The court itself made rather sanguine observations, saying that any regulatory mechanism must remain at the periphery since corruption can breed due to regulations.

Overall, one can be more than happy with the new set of guidelines that the central government has proposed; they are sensible and rational (albeit not perfect), but are more than welcome.

Sunny days may yet lie ahead for the Indian taxi industry.

This article is a part of our special series on urban mobility.