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Bengaluru, the second-largest market for ride-hailing services in India, will likely be the first city to see a new local taxi fare structure designed while keeping in mind new-age services like Uber and Ola.
The Karnataka transport department, which has led the charge in coming up with new rules to regulate ride-hailing services in the country, has submitted a proposal to the state government to fix fares based on the value of vehicles rather than their type.
Besides, the department has suggested a fare range for each price slab rather than a fixed fare that has been in place so far. The proposal was chalked out after a three-month study that even used data furnished by Uber and Ola to the transport department.
“We have held multiple discussions with all the stakeholders and have taken data from the aggregators. On that, we have done a detailed study to understand peak hours, the cost of the vehicles and the various expenditure drivers incur,” said B Dayananda, Karnataka’s commissioner of transport.
The state government’s approval to the proposal is currently pending. If it is cleared, the state will become the first in India to have rules moulded by the success of ride-hailing services. The fare range is supposed to allow Uber and Ola to charge surge prices during peak hours, a demand they have long had from the state.
Karnataka was also the first state to ban surge pricing by cab aggregators, citing protection of consumer interest. Cab companies, however, had argued that surge pricing was an integral part of their services, as it allowed them to regulate demand and supply in times where demand exceeded supply, to bring more cabs to an area that was experiencing high demand.
“A bandwidth has been prescribed because the aggregator model functions on a bandwidth depending on whether it is a peak hour or non-peak hour. The fare will have to be within the bandwidth, set on the basis of our scientific study and passed on to the government for approval,” added Dayananda.
Previously, fares for city cabs had been fixed at Rs 19.5 per kilometre for A/C sedans and Rs 14.5 per kilometre for hatchbacks.
Under the new proposal, cars costing under Rs 500,000 can charge a fare between Rs 11 and Rs 22 per kilometre; vehicles costing between Rs 500,000 and Rs 1 million can charge between Rs 12 and Rs 24 per kilometre; and cabs costing between Rs 1 million and 1.6 million will be able to charge between Rs 16 and Rs 32 per kilometre.
For luxury cabs costing over Rs 1.6 million, the fare range will be between Rs 25 and Rs 45 per kilometre.
The fare range for non-luxury cabs will allow surge pricing up to twice the amount of the base fare. While this will give players like Uber and Ola some leeway with regard to surge pricing, it’s still a far cry from the three, four and five times the fare multiples that customers used to see during peak hours when there were fewer cabs available.
For drivers, the new fares would bring some relief, as ride-hailing players will not be able to undercut the cost of rides, something which has put immense pressure on their earnings over the past year and a half. However, it is to be seen how sustainable the new fares are going to be for them, given that Uber and Ola charge a 20-30 per cent commission on each trip.
While the proposed fare structure could be revolutionary, there are some flaws, too. For instance, it doesn’t say whether the cost of the car considered is for the time it was purchased new or its current cost after depreciation over time. Also, with Uber and Ola pushing for minimal regulation, it is to be seen how both companies react.
Both Uber and Ola had not responded to queries from Business Standard at the time of writing of this story.
In the past, Uber took Karnataka to court over its decision to license ride hailing players and put a stop to surge-pricing practices. While Ola took a stance that it was willing to comply with the state’s requirements, several industry sources and insiders said the company did so only to throw a spanner in Uber’s growth ride in Bengaluru.
Maharashtra has also proposed a similar regulation of setting fares based on the engine capacity of a vehicle, besides asking them to secure a permit specific to ride-hailing services.