Modi Govt Comes Out With A Very Liberal Taxi Policy Framework. Here’s What You Need To Know

Modi Govt Comes Out With A Very Liberal Taxi Policy Framework. Here’s What You Need To Know

by Shreyas Bharadwaj - Dec 19, 2016 03:17 PM +05:30 IST
Modi Govt Comes Out With A Very Liberal Taxi Policy Framework. Here’s What You Need To KnowIndian commuters and taxi drivers navigate through heavy traffic on Howrah Bridge in Kolkata. (DIBYANGSHU SARKAR/AFP/Getty Images)
  • The policy prescriptions proposed by a committee to improve urban mobility heralds a change in the way Indian policy makers approach this area.

    The proposals for taxi regulation, discussed here at length, are sound and will benefit the taxi industry, the government and the consumers alike.

This writer has previously complained about the delay of over a month for a report of the Committee on Taxi Policy to be released. The report finally came out on 15 December. Congratulations, readers. We seem to have the best taxi policy framework among the major countries of the world. It appears that we have the NITI Aayog to thank for it. Fair to say, this report heralds a change in the way Indian policymakers think about urban mobility. This might not even be all. The report hints at more of the good change coming our way in the future.

The committee, before detailing its recommendations, makes its case by explaining how congestion on the roads of Indian cities has proven costly to us as a nation (they quote a figure of Rs 60,000 crore per annum) and how better, more efficient urban mobility solutions can help reduce these costs as well as increase public convenience in city transport and ‘stimulate employment and investment’ .

It also makes an accurate assessment of the current condition of the urban mobility industry.

The taxi permit regime in India is highly onerous and is limiting the growth of the taxi and shared mobility industry. In most of the cities no new permits for city taxi have been issued after 1998. There are substantial requirements attached to permit conditions that are rendered unnecessary or outdated due to the advent of new technology.

Later, the report identifies the consequences of the same.

These ceilings on city taxi permits also hurt the consumers due to irrational rent seeking. This artificial scarcity of the city taxi permits is one of the main reasons for evolution of other modes of city taxi services as, citizens were in dire need of such taxi services which started operating due to high demand, providing relief and convenience to the public.

This writer has detailed the same in an earlier article on the taxi industry.

So, let’s dive into some of the important recommendations from the report (they’re in italics).

#1 Eliminate the artificial supply constraints present in the taxi market today due to government regulation by increasing the ease of obtaining permits (online) and facilitate unhindered grant of taxi permits with no restrictions in numbers.

This is a sane position to take given how the report has already detailed the enormous supply restraints in Indian taxi markets.

#2 Allow online conversion of permits from one type to another and if possible allow online conversion of personal vehicles to commercial taxis.

The states that adopt this recommendation would see cheaper taxi fares as well as more taxis. This is because currently the regulatory tax involved in getting a permit and converting personal vehicles to commercial taxis deter a lot of potential service providers and make up a significant part of the cost structure.

#3 The committee strongly recommends to avoid unreasonable restrictions that will make taxi operations economically unviable, thereby causing inconvenience to the citizens and increased use of personalised vehicles.

This is a repetitive theme of the report, and for good reason.

#4 Allow surge (dynamic) pricing at 3X of minimum fares during the day and 4X of minimum fares in the night. The state transport department can ask the aggregators to submit a suggestion on what the minimum fare would be, after which it can proceed to fix such a minimum price. The committee suggests that the above caps be applicable for economy taxis i.e. those taxis less than 4m in length. They also ‘strongly recommend’ that those greater than 4m in length be classified as deluxe and no limits on surge pricing be placed on them.

While it would have been better to not impose the 3X or 4X limit on the economy taxis too, what the committee suggests is a fair compromise given the regulatory environment in the states. Currently, 87 per cent of the cars would be classified under ‘economy’. This percentage will reduce if the recommendation is widely adopted by the states, as car makers would start bringing out versions of their cars which help aggregators skirt around this rule. We can see glimpses of how this process could happen in the number of manufacturer-taxi aggregator partnerships announced in the last few months.

#5 There should be no restrictions on the choice of the operator or aggregators with regard to composition of the fleet, i.e. deluxe and economy. & the Aggregators should get the App validated from Standardisation Testing and Quality Certification (STQC) or any other agency authorised by Ministry of Electronic and Information Technology (MEITY). Aggregators should take measures including a firewall for the security of the personal data of the passengers.

This is a welcome recommendation given the policy direction that states like Karnataka and Maharashtra are taking. Maharashtra’s rules are uniquely distortionary in this regard. Here is one example of such a rule:

Induction schedule for vehicles as given below —

(i) 25 per cent vehicles at the time of grant of licence

(ii) 50 per cent vehicles within three months from grant of licence

(iii) 75 per cent vehicles within six months from grant of licence

(iv) 100 per cent vehicles within nine months from grant of licence.

#6 The committee in the interest of last mile connectivity and cheaper mobility solutions recommends legalizing ride-sharing and allowing bike-taxis and e-rickshaws to operate.

Again, a welcome recommendation considering how many states have harassed bike-taxi trial runs. It can also help clarify the legal status of ride-sharing and thus protect it from legal challenges by the traditional taxi industry.

#7 Committee is of the opinion that the above guidelines should be applicable uniformly in the National Capital Region (NCR) so as to offer seamless connectivity to the occupants of the region.

This will not only help reduce connectivity bottlenecks in the region but also in part help reduce pollution due to vehicular emissions in the region.

How did these recommendations come about?

The report does hint at what might have happened. The Transport Commissioner of Maharashtra seems to have suggested that the rules for taxi aggregators in Maharashtra ought be considered. As alluded to earlier, Maharashtra's rules are terribly counterproductive. Their rules would render the taxi-aggregator model illegal. Thankfully, especially to the Transport Adviser to the NITI Aayog Dr Manoj Singh, such rules were prevented from entering the final list of recommendations.

The NITI Aayog’s views are detailed separately in the annexures of the report. The government think-tank is not only against the fixing of a minimum price due to concerns about such a measure promoting inspector raj and corruption, but also against any sort of limits on surge pricing. They say, “NITI AAYOG recommends that there should not be cap on the surge price, just as there is should be no lower floor price. Market competition should decide the price levels.”

The Aayog also seems to recognise the incredibly distorting nature of supply constraints in the taxi market when it says, “Taxi licenses should be given online, on the basis of pre-specified criteria for grant of license. A license should either be given within 15 days of application or it should be deemed to have been given.”

The Aayog also stresses on the need to de-regulate bus services and allow for aggregator-like bus services in Indian cities. In fact, Finance Minister Arun Jaitley had announced the government’s intent to allow states to do the same in the Union Budget of 2016. Sadly, nothing seems to have been done to implement the same. Despite ‘bus de-regulation’ not being an area of focus for the committee, we can hope to see something being done to implement the finance minister’s budget announcement in the near future.

With the committee’s report finally out, it is now up to the states to adopt these recommendations. Telangana most probably will be the first state to do so. It has been waiting for precisely this report before framing its own regulations on taxi aggregators. However, this writer is fairly sure that Karnataka won't adopt these recommendations anytime in the foreseeable future given how the existing rules, which came into force early this year, have developed a support base among traditional taxi players and one of the taxi aggregators.

It would be useful for the centre to push the National Democratic Alliance-ruled states to adopt these recommendations as quickly as possible and the Aayog to rank states on urban mobility. The faster these recommendations are adopted, the more are the benefits for the consumers.

In the past year and a half of trolling through government reports and publications on urban and transport policy issues, this writer has never come across anything as close to a sound economic policy as this. Kudos to the NITI Aayog and the Ministry of Road Transport and Highways for bringing about this welcome change.

Shreyas Bharadwaj is a Hindutvawadi from Mysuru who is interested in writing about cities and public policy.

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