August 11, 2016 will be remembered as a dark day for app-based cab service aggregators in India. The Delhi High Court banned surge pricing and mandated cab aggregators like Ola and Uber to charge customers as per government-fixed rates. This move is also gaining support in other metropolitan cities.
The Karnataka government, in April 2016, banned “surge pricing” on the grounds that it is exploitative. Additional Commissioner (Transport) HG Kumar in a statement said, "They cannot do any kind of surge pricing, surcharges etc. We have fixed prices."
In both these cases, the government’s desire for standard, transparent, uniform pricing comes into direct conflict with a key market dynamic of the sharing economy.
“Surge Price Dynamics” allow cab aggregators to maximize supply and ensure that service providers are able to equalize demand and supply. Basically, when there is very high demand, the price of a taxi ride can double or triple. This can have the effect of drawing more drivers to the market thus adding to supply and helping to meet the demand.
This is similar to the price rise witnessed by hotels and airlines during holiday seasons. When we don’t complain about these services why should one complain about Ola and Uber surge pricing?
More over, currently, neither of the cab operators inform the citizen about the surge prices, when applicable. Hence, ban in surge pricing has created an economy, where customers no longer have the right to choose or make an informed decision. Without prior information about the increase in price due to high demand, customers end up paying 1.5 or double the price without having the right to consent, the option of waiting for the surge to end or decide on a different mode of transport or cab aggregator.
Further, banning surge prices can be detrimental for the Karnataka government as these sharing economy models have been successful in providing employment for thousands of people and have increased the quality and quantity of services, enhanced digital literacy and empowered people to become micro-entrepreneurs.
The government should intervene, regulate and provide cheaper and easy ways of commuting. However, tightening the noose around private taxi aggregators is not the answer. Instead the government should provide better transportation alternatives and make sub-urban rail and metro a reality.
Trust is the key factor binding the sharing economy model which runs primarily on a virtual platform. Trust is also the biggest challenge faced by this economic model. Although the December 2014 incident where an Uber driver allegedly raped his female passenger can be passed as a ‘one-off incident’, it reveals the loop holes within this booming sector. Keeping the safety and security of commuters in mind, on April 2 2016, the Karnataka government issued a notification which mandated cab aggregator companies to comply with stringent safety requirements and compulsory background checks for drivers. While this is a welcome move, the government is advised to additionally provide for strict penalty for the company, the car owner and the driver in case of any default.
The new state government transport policy should provide impetus to carpooling as a favourable option for office goers, targeting the IT sector in the Outer Ring Road and Whitefield junction. The carpooling services offered by cab aggregators currently fall under the grey area of the ancient Motor Vehicle Act, 1988. This law comes in direct conflict for the private car owners as the law prohibits carpooling for a profitable venture. Hence, the car owners are dis-incentivised from sharing their personal commodity for a minimal price and they also run the risk of entering into a complicated procedure for insurance claims.
While mocking the massive traffic zones especially around Whitefield junction have become a norm in Bangalore city, it is essential for the government to reach a solution to reduce this growing traffic menace in the city. Not only is it hampering the IT sector with companies now preferring Chennai and Hyderabad as their base location, these jams have also proven to have a disastrous effect on drivers’ health.
The government should consider integrating models such as UberPool and OlaShare with Karnataka government’s e-governance mobile application. Further, this move will reduce the number of cars on road at a given time and will reduce the burden on these high traffic jam areas.
The government is advised to adopt technology for a mobile based application which showcases all commuting options available for the public. This will provide a boost to the existing public transport system, especially Bangalore Metropolitan Transport Corporation and Vayu Vajra buses. This would also pave way for a perfect competition where the onus of choosing a commuting method lies on the consumer based on the understanding of all the alternatives available to them.
The growth of sharing economy and Karnataka’s economic growth are interrelated. With increase in digital literacy, high internet penetration and increase in provision for alternative employment modes- be it entrepreneurship or jobs- the sharing economy model has been successful in generating waves in almost every section of society and the scope of products is not limited to a particular category.
However, certain questions need to be answered by the government, regulators, service providers and aggregators. Primarily, does this sector require regulation by a heavy hand or through a light touch? An optimal solution towards the various challenges faced by this sector will help in further development and growth of sharing economy model which in turn will facilitate an economy boost for the country.
An edited version of the article was published by The News Minute on 23rd August, 2016