Govt's move to cap commission at 10% will put us out of business: Cab firms

Wrong. That’s the word cab aggregators use for the perception that drivers and customers get a slightly raw deal while they make money. With the government thinking of capping the commission they get from drivers at 10 per cent, cab aggregators have told Business Standard this will put them out of business.

For every Rs 100 that a customer pays a driver, Rs 75 goes to the driver, Rs 5 goes to the government as GST, and they get what’s left, say executives.

As much as two-thirds of the 20 per cent commission they earn from a driver’s revenue is ploughed back to drivers and users in the form of incentives and benefits. Apart from the incentives, 13 per cent of their 20 per cent is also spent on technology, services, and physical infrastructure. Given this break-up, they say they require around 20-23 per cent of a user’s revenue merely to break even — much more if they look at global margins in the business which are around 5 per cent net.

According to executives, these figures explain why they are still in the red and looking at expanding the volume of business to pare down costs. The message to the government is loud and clear: if you go ahead with your new rules capping the commission, we will have to shut shop.

The government is considering a proposal to cap the commission paid by drivers at 10 per cent and to stipulate that only 10 per cent of all rides can have a surge price which, moreover, cannot be more than twice the normal tariff. The rules will only be finalised after discussions with stakeholders.

Aggregators argue that the basis of calculating a cap on the surge price of 2x by the government is not clear. They say the surge price, on average, is between 30 and 40 per cent and that too only for a few trips. 

“A price has three components — a base price, the price based on the time taken between the two distances, and the per kilometre fare. Our surge price is based on an increase from the blended fare for six months in a normal demand cycle with when demand goes up,” said a source.

So what are the benefits and incentives that the companies are ploughing back money for? 

Executives say it is essential to differentiate between “good and bad drivers” and wean away those who are a problem. “For instance, we provide financial incentives to drivers based on low cancellation rates, high ratings by users, timeliness of arrival. This is essential to incentivise good driver partners,” said an executive with a car hailing company.

He added that, in order to encourage more consumers to opt for car pooling, his company provides discounted tariffs to consumers which help to make the service cost-effective.

The cab aggregator model, say executives, ensures that drivers make 20 per cent more than driving a taxi. They can earn Rs 45,000 gross per month and Rs 20,000-Rs 25,000 net after paying all the bills and for the loan of the cab, but this dictates that he works between 6-12 hours a day, six days a week. 

The firms say the drivers enjoy free insurance and discounts on maintenance (which have to be done every seven weeks) thanks to the tie-ups they arrange. They also offer EMI support for the first few months, along with incentives based on the number of trips, in order to cushion the initial burden of buying a car. 

If drivers need loans, the firms have tied up with microfinance companies to offer them attractive rates. All these ‘extras’, they say, come out of their share of the 20 per cent commission. 

In terms of technology, cab aggregators say they have to spend a substantial amount on research and development, fine tuning and upgrading the platform, putting in security measures, operating a 24x7 help desk for drivers, and physical support centres.