1. Uber not a taxi service, don’t regulate it as one

Uber not a taxi service, don’t regulate it as one

The Centre’s reported plan to change the Motor Vehicles Act (MVA) and empower state governments to regulate taxi aggregators like Uber and Ola is the kind of obsolete thinking in policy that hurts innovation.

By: | New Delhi | Updated: July 24, 2016 11:40 AM
Following its submission in the Karnataka High Court on Monday, Ola had raised the issue of “foreign” identify of Uber, which did not respect the laws of the land. (PTI) The Centre’s reported plan to change the Motor Vehicles Act (MVA) and empower state governments to regulate taxi aggregators like Uber and Ola is the kind of obsolete thinking in policy that hurts innovation

The Centre’s reported plan to change the Motor Vehicles Act (MVA) and empower state governments to regulate taxi aggregators like Uber and Ola is the kind of obsolete thinking in policy that hurts innovation. What is surprising is that the government championing the Digital India vision should display the same blinkered understanding of the very nature of aggregators—and thus miss the larger picture in the disruption brought about by them—as states like Karnataka and Maharashtra have shown in wanting to regulate the aggregators under the MVA. As technology-providers that help passengers find cabs, Uber/Ola are not agents or taxi-services that solicit rides. If anything at all, an aggregator is more like a taxi-stand or a cab-park; only, it offers the passenger the convenience of not having to physically find one to hire a cab. So, the Centre’s stand is decidedly odd; more so, given the Karnataka High Court, which was approached by Uber, is yet to decide whether aggregators can be treated as taxi services or not.

To be sure, there could be some short-term political mileage in capping fares—and effectively ending surge-pricing, or the temporary spike in charges in the face of high demand—by bringing the aggregators under the MVA. But, as Uber has argued, its surge-pricing technology actually creates greater transport capacity by inducing more cabbies to ply on a route where the demand is high. In doing that, the technology automatically ensures that enough supply is generated and charges fall. Contrast this with the self-determined, outrageously-inflated charges that autorickshaw drivers often charge in, say, Delhi or Bengaluru. Or the ‘surge-pricing’ that happens in the hospitality or aviation industry—when demand goes up, so do charges, but the overall availability of rooms/flights remains unchanged. In sharp contrast, an Ola or an Uber – and other aggregators across services, from budget lodging to handyman services – are drawing unutilised capacity into the economy and are thus contributing significantly to the country’s growth by way of adding to productivity.

Besides, Uber alone has committed to investing $1 billion for its India operations—that kind of money could mean thousands of new jobs created. Since Uber/Ola are disrupting traditional models, the gains from facilitating their growth and spread far outweigh the losses – which, in this case, boils down to taking away the government’s right to decide how many cabs will ply in a state, or how many hotel beds are to be allowed. Both the Union government and the states need to go beyond petty political motivations and consider the loss to the economy if the taxi-aggregators are forced to conform to MVA provisions. Restrictive and inapposite regulation will end up making them reluctant to invest and innovate in India. Columnist Mohamed El-Erian points out in his latest Project Syndicate column that growing restrictions on the likes of Uber and Airbnb will hit the young particularly hard, both as producers and consumers. For a country with an overwhelmingly young population—for which it desperately needs to create adequate economic opportunities—India can ill afford to clamp down on the likes of Uber.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

  1. P
    Jul 23, 2016 at 4:40 am
    Nice article. Central govt appears very confused in rolling out Digital India, Make in India & other initiatives. There is no action on ground yet and hope these initiatives just don't end up in lip services. Let's support disruption using technology in every field. Look at Western countries for best practices. What Ola and Uber is doing ultimately helping common people. Don't lose focus on ultimate customer for the sake of politics!
    1. P
      Jul 23, 2016 at 10:36 am
      Completely one sided and corporate author. If it is like a taxi stand then why are they charging commision from driver for each ride? Why are they collecting payments from customers and then paying driver if they are just a stand? Author should also highlight how Uber is burning money now to incentivise drivers and after few years will charge a higher rate. Why doesn't Uber want to be regulated or answerable to government. This is just a stunt to not take responsibility of the customer or driver. They can wash their hands off any issue claiming they just connect people and they are not responsible for the service.
      1. Rakesh Agarwal
        Jul 23, 2016 at 11:21 am
        Essentially, you are saying Uber should not be asked to conform to the law (MVA).I am a taxi aggregator and I have no issues complying with the law. Why shouldn't Uber and Ola? The rationale put forth by Uber and Ola that the surge prices are meant to encourage more taxi-drivers to come onto the road when the demand is high is without any basis. The taxi-drivers come on to the road anyway when the demand is high and the surge prices do nothing to increase the supply. Surge price is an import from Europe and North America where the concept originated because private people/drivers use their vehicles as taxis in spare time to earn extra income on the side. When the supply is low due to inclement weather, for example, or demand is high due to sports events, it makes sense to use surge price as a tool to persuade private drivers to leave the comfort of their homes and get onto the road. In India, however, taxis are driven by professional drivers with commercial licences hailing from low to mid income strata of society who do so for a living and for whom, driving taxis is often the only source of livelihood. They cannot and will not go back home when it is raining nor do they have another primary job to leave in favour of driving to fulfil increased demand when a special event is happening. They don’t need to be taken out of homes or offices. They are already THERE on the road. Therefore, peak time charge or surge price is nothing but a tool deplo by Ola and Uber to (i) overcharge, and (ii) cross-subsidise low fares such as Rs.5 per km at normal times.The really issue we should have with Ola and Uber more than licences or surge prices is the low price they advertise and sometimes charge (mostly, surge is added on). Discounts are nothing but bribes to pengers and so are the incentives to drivers, meant to kill compeion, which I hope you will agree is harmful for economy and the market in the long run.
        1. Rakesh Agarwal
          Jul 23, 2016 at 11:25 am
          Please see my post after yours. Echos your views. By the way, it was my company that raised the storm against surge pricing in April which prompted Kejriwal to tweet and Ola, Uber to withdraw surge temporarily.

          Go to Top