Karnataka’s Ola Ban: Startup Nation Meets Regulatory Overreach

Late last week, Ola Cabs, a premier cab aggregator service, was arbitrarily banned by the Karnataka government from plying in Bengaluru. Overnight, thousands of cabs were asked to stay off the roads by the Karnataka government’s transport department, while livelihoods of thousands of drivers and their families hung in the balance. The reason? Ola conducted a three-week pilot of bike taxis, which ostensibly violated its licensing conditions.

Once upon a time, Karnataka was a pioneer in defining the rules for new age technology companies. It was one of the first few states to recognise the concept of an ‘aggregator’ (being different from a traditional taxi company) and introduced a specific regulation – the ‘Karnataka On-Demand Transportation Technology Aggregators Rules, 2016’ to regulate the functioning of cab aggregators. The government under these rules asked the cab aggregators to seek a licence. Ola applied for a licence and got one.

However, the Karnataka aggregator rules were challenged by Uber, the main competitor of Ola, in the court of law. Uber got an interim protection from the court preventing the government from taking any coercive action against the aggregator, while the case was sub judice. The same interim protection was later also extended to Ola.

Since then, the issue of Karnataka cab aggregator rules has not been fully resolved. In this time, Ola has been operating with an aggregator licence in Bengaluru. Whether the transport department could legally suspend the licence, with the matter still sub judice, is a question for legal experts.

The recent matters came to the fore when Ola was experimenting with its bike taxi service a few months ago. Although first launched in 2016, it appears that this service was undergoing another trial. Karnataka does not have any specific rules on bike taxis, however in 2004, the Central Motor Vehicles Act, 1988 was amended to recognise bikes as a transport vehicle and since then ‘bike taxis’ have been a common phenomenon in various parts of the country – especially given the obvious environment and decongestion benefits it offers.

In fact, Rapido, a dedicated bike taxi service, has been running in Bangalore for over 12 months and for much longer in other parts of Karnataka. It uses many more bikes than what Ola was doing in the most recent pilot and seemed to have the blessings of the state transport department.

For its bike taxi experiment, Ola was served with a show cause notice by the state transport department. In response to this notice, it appears that Ola stopped the bike taxi service. However, the state transport department went ahead and ordered a six-month ban on all Ola services in Bengaluru. Even if the government deemed Ola to be in violation of cab aggregation rules, the commensurate response should have been to stop the bike taxi services. Instead, the government asked Ola to completely pull out of Karnataka – a state Ola had made its home for the last five years.

Predictably, this caused a furore on social media. This move was labelled against the spirit of startups. Some social media users linked the order with the impending Lok Sabha elections, accusing the government of being usurious and extortionary. The plight of thousands of Ola drivers was highlighted and first-hand testimonials on the issues they were likely to face flooded WhatsApp and Twitter.

This case shone spotlight on the arbitrariness of the regulatory zeal Indian companies, especially new disruptive startups, are subjected to. The Central Motor Vehicle Bill has been stuck in Rajya Sabha for many months, awaiting passage. The states have defined their laws in a few instances, but they have been challenged in the courts, while the aggregators await the final word. In the interim, the governments take a broad view of restrictions they seek to put on these players, rather than letting new experiments run their course.

There is also the issue of favouritism. In Karnataka, the Chief Minister launched a state-backed cab aggregator service TYGR last year. The platform has failed to scale. But some commentators linked the ban on Ola to the need to move more drivers to the state-backed platform. While the transport department asked Ola to shut its bike taxi service, Rapido continues to operate in the city.

This situation highlights the classic Indian regulator dilemma. It is not just that the regulations do not account for the technology-led changes happening around us. It is also that the sub-optimal regulations are applied in a discretionary manner with no regards to offering a level playing field to the various players.

After all the negative reactions to the ban, Congress leader Priyank Kharge intervened in the matter. The state government then allowed the Ola services in Bengaluru after a day-long disruption. While it is good for the elected representatives to pay heed to public sentiment, this issue needs a long-term solution.

Shared mobility is an area of constant changes and evolution. Existing as well as new players will continue to create new service offerings through technology, addressing various use cases. Some apps are already offering co-riding matchmaking services for individuals who commute from the same area to the same office premises. These new business ideas will always lead the regulatory framework.

The state governments, responsible for creating local transportation regulations, should take a more progressive view of what should be allowed and what should not be allowed. Of course, safety and security should be the main concern of the state when creating licensing norms. But interpreting these norms liberally for the greater good, and applying them uniformly across players, is the need of the hour for urban transportation.

Meanwhile for now, Ola cabs are back on the Bengaluru roads.