Government needs to create level playing field for app-based taxi aggregators: MDI, Gurgaon


New Delhi: Abhay Damle, Joint Secretary of Road Transport & Highways today unveiled a joint study by MDI, Gurgaon and Resource Development International (RDI) on “Socio Economic Impact of Application-Based Cab aggregators (ABCA) in India and emerging Policy Issues.” The study deals with a host of topics concerning shared economy, dynamic pricing, incentivization, working condition of drivers, passenger safety, uneconomic competition and impact of ABCAs on other modes of transport.

Over 1200 drivers and 300 customers across Delhi, Mumbai, Bangalore, Hyderabad and Kolkata were surveyed by RDI and MDI for the purpose of the study. The study also conducted roundtable discussions and one-on-one interviews with key stakeholders in the industry to study the social and economic impact of ABCAs business on drivers and customers.

The report is co-authored by Prof. MP Jaiswal, Dean (Research & Accreditations), Assistant Prof. Parul Gupta, Public Policy & Governance, Assistant Prof. Prageet Aeron, Information Technology of MDI, Gurgaon and Mr. Rajeev Gupta, Managing Director of the Resource Development International (India).

The event was moderated by Mr. Ashok Malik, eminent journalist and fellow, Observer Research Foundation. Attendees included Dr. Arvind Gupta, National Head for IT and Digital Communication at BJP, Dr. Shamika Ravi, Senior Fellow, Development Economics, at Brooking India, Mr. Subho Roy, President of Internet and Mobile Association of India and Mr. Bejon Mishra, Founder of Partnership for Safe Medicines (PSM) India.

Vital stats
  • 55% commuters across India prefer hailing a taxi from an app-based aggregator
  • Kaali-peeli taxi is the second choice for every third Mumbaikar
  • 79% of app based cab drivers reported an increase in income from before
  • App based cab drivers make the maximum number of trips per day compared to both autos and private taxis
  • 50% or more of the income earned by app based cab drivers is derived from driver incentives paid by the aggregators

Only 14% of app based cab drivers would continue to work for the aggregators without incentives

Key recommendations
  • Foreign funding should be scrutinised on a case-to-case basis to prevent uneconomic competition.
  • Steps needed to ensure passenger safety, protect consumer interest and keep driver fatigue in check.
  • Cab sharing is one of the most powerful initiatives that cab aggregators have pioneered for the shared economy.
  • The government needs to revise and revisit regulations for businesses in the cab aggregation space, given the tremendous potential that the industry holds in the near future.
  • Innovation should be encouraged and well-funded players should not be allowed to stifle competition
  • Roles, responsibilities and relationship between drivers and aggregators needs to be clarified.
  • Larger issues like data privacy, anti-competitive tactics, value erosion by capital dumping need to be addressed through adequate policy intervention.
Specific Observations:

“Our policy is based on the old school thought of taxing products,” Mr Rajeev Gupta said. “Like, when products were imported below the market rate, an anti-dumping duty was imposed to protect Indian companies. Even in manufacturing, when a foreign technology is deployed in India an import duty is imposed on the technology. However, this definition is not extended to the technology developed abroad and ‘downloaded’ at home. Suppose Amazon or Uber develop technology abroad and deploy it here, there’s no physical product that can be valued for imposing an import duty.”

At present, to protect government’s interest, an equalisation duty is imposed on foreign technology downloaded in India. For example, Google pays 6% of its revenue as equalisation duty. Because, “Had these technologies been developed in India, these companies would have paid taxes, but right now, there’s no way of recognising revenue from this. This is a huge revenue loss for the government,” Mr Gupta said.

Foreign investments

The report also studied the implications of investment of foreign capital in the cab aggregation business. Although foreign funding does not create a competition-threatening situation, it presents a “dilemma of future gains and threats.” Foreign investments are used to offer discounts for customers and incentives for drivers. This type of business model cannot be sustained forever, unless, it wipes out competition and creates monopoly, which will not augur well for the ecosystem.

Restricting (foreign) investment completely may not be wise but regulators must scrutinise the trade-offs. “Government regulations should be broad in order to ensure companies don’t create alternate channels to subsidise and incentivise in excess of the revenues collected from customers,” the report recommended.

Dynamic Pricing

According to the report, parameters of competition should go beyond low-pricing. The government should ensure a healthy competition by fixing a minimum fare and aggregators should not be allowed to set their fare below market cost. This will help remove entry barriers, encourage new entrepreneurs in this space and new possibilities like ride sharing and driver sharing can be explored.

While noting dynamic pricing as part of the business model of cab aggregators, the report stated, restricting it will stifle innovation. It should be limited by a multiple of three, and emergency situations should be exempted.

Working condition of drivers

The research discovered that drivers work for more than 12 hours non-stop for incentives. Companies should not over-incentivise drivers. Sleep deprived and fatigued drivers jeopardise safety of passenger and other people on the road. They also tend to behave badly and harass customers. A common point of acceptance amongst some Uber drivers was their higher earnings per ride – with the company topping up fares with more incentives, as compared to Ola. While in the short run, drivers would only be happy about this, it raises serious questions on the viability of the model and sustainable livelihoods of drivers in the time to come.

Passenger safety

To protect customers from harassments and assaults app-based aggregators must have a 24×7 emergency hotline or call centre. Police verifications and checking criminal records are not enough. Incidents of driver misconducts should also be recorded. The government should clarify the responsibility of cab aggregators and drivers on their platform. Customers should be able to make an SOS call to the company. At present, only Ola has a customer call centre to resolve issues immediately and answer SOS calls.

Ride sharing

Extolling the virtues of “shared economy” – where people share assets and resources instead of owning them exclusively, the report stated shared cab rides are of the major positive changes brought by aggregators. The report stated, “Top-down, government imposed regulations are only one choice in a suit of alternative.”
“The main threat to the further emergence of these new technologies is crowding out of beneficial exchanges with stringent government regulation. Thus, we strongly advocate that business operations of ABCAs must be regulated in a manner that does not stifle innovation,” the report stated.

Other recommendations

The report, which captured multiple views, recommended revision of transport permit system to allow taxies to be listed across platforms to ensure success of shared economy and ease the pressure on public transport.

Since app-based aggregators and forces of shared economy have a long-term impact on the labour market, the government needs to be proactive in countering policy issues and threats to entrepreneurship and innovation.

Loans and Lifestyle Inflation threaten to play spoilsport for Drivers relying on Incentives

The research revealed that among all sorts of taxi service providers, cab aggregators such as Ola are the most favoured platforms for both customers and drivers. Customers like the transparent pricing, cab cleanliness, availability and punctuality provided by cab aggregators. Respondents from all five cities surveyed, said that drivers affiliated with cab aggregators are the most well-behaved and drive more carefully. Respondents said factors such as unavailability of cabs, delayed arrivals and surge pricing affect their choice.

Drivers associated with aggregators, on the other hand, said that though they are paid better, they needed to work longer hours to earn the incentives offered by the cab aggregators causing driver fatigue and unsafe driving conditions. However, drivers were unable to cut down on hours driven due to car loans taken and other financial commitments. A majority of drivers showed signs of lifestyle inflation such as moving to a larger house due to the flow of incentives.

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