Govt may cap Ola, Uber driver charges; industry calls it a bad idea

Though this will increase the earnings of drivers, a fear among industry players is that any meddling with natural market dynamics might cause more harm than good

The Union transport department will soon float draft guidelines for app-based taxi operators like Ola and Uber which will, among other things, propose a cap on the commissions these companies charged from drivers. Though this would be a welcome move for drivers, the industry does not seem impressed: The fear is that any meddling with natural market dynamics might cause more harm than good.

Driver charges are dynamic but typically fall in the range of 20 per cent of the trip fare. According to a report, the government is considering capping it at 10 per cent.

The move, if taken up as is, will directly affect the earnings of cab aggregators, which are already operating in the red, thanks to a price-sensitive nature of the market. Ola and Uber — operating in a duopoly market — constantly try to out-do each other with cheaper fares and driver incentives.

A transport ministry official in New Delhi declined to comment on the fine print but said the draft policy would be released soon. It will be put up for public consultation.

“Price regulation in any form has rarely been effective,” said Rehan Yar Khan, venture capitalist and co-founder, Orios Venture Partners. “Instead, what has worked, such as in telecom, airlines, retail, etc, is creating a platform for increased competition. Then, if any player is making very high profits, other players rush in to cut prices and normalise the market,” he said on Twitter.

The tenure of the Narendra Modi government at the Centre has been marked with sweeping policy directives for core as well as new-economy sectors.

Besides goods and services tax (GST), which disrupted all spheres of corporate India, government made at least three alterations to the e-commerce rules, rolled back its promise of doing away with interconnect user charges (IUC) in telecom and is said to be mulling a cap on market share of digital payments firms.

These developments have drawn criticism from both multinationals and a section of Indian companies which say lack of policy foresight is hurting investments and future plans.

“Govt has proved incapable of running businesses repeatedly — be it airlines, hospitals or schools. Their trying to define business models will curb innovation, (as) new models that are trying to address big pain points,” said K Ganesh, a serial entrepreneur and investor. “I am sure, there is some issue with commissions, as raised by some drivers. Those will get resolved through free market forces. Every time a section of people — be it consumers, vendors or operators — raise issues, the government should not jump into bringing new regulations or restrictions.”

India only recently brought into force a new vehicle laws, the Motor Vehicles (Amendment) Act, 2019, which, for the first time, defined cab aggregators as intermediary technology platforms. More granular guidelines, to be released soon, will include directives on safety, surge pricing and licensing norms.