Taxi aggregators shift revenue model, but vehicle numbers a cause of worry

A zero-commission model relies on increasing numbers of taxis entering the market, but states' data shows that new taxis are growing at a slower rate than is required

A worrying trend on the number of taxis, as per state governments' records, could well prove to be the Achilles heel in the business model of taxi aggregators' - private or government-run - that are banking on the zero commission model.

 

The numbers, culled from various transport departments across states, show that the fleet of taxis in India may not be expanding fast enough to support taxi aggregators' ambitions. This has severe implications for the fixed-revenue subscription models that operators like Ola have recently adopted. The model was pioneered by newer entrants like Namma Yatri and Rapido, which are betting on a rapid expansion of the number of taxis to make their businesses viable.

 

The universe of cars or bikes on the road is critical, given that taxi policies are becoming a key concern of state governments. Goa, for example, first released a policy for aggregators but then partially withdrew it after local taxi unions protested. Next door, Karnataka has entirely banned bike taxis, a popular service in congested Bengaluru, after local taxi drivers pushed back against the cheaper motorbike service. 

 

In the national capital of Delhi, too, the number of taxis, radio tagged or otherwise has declined substantially. From 118,308 in FY 2017, the number of cabs grew to a high of 122,476 in FY20, before falling to 85,981 in FY24. While some of the decline can be attributed to the aftermath of the Covid-19 pandemic, the de-growth is substantial, nonetheless.

 

The numbers in neighbouring states are not particularly encouraging either, even though they show modest increases. Rajasthan saw an only 7.39 per cent cumulative growth in taxis over a 11-year period. Uttar Pradesh recorded a marginally-better 13.59 per cent growth in more than a decade, just at par with the nominal GDP growth rate of India. In Maharashtra, including Mumbai, the growth rate of taxi numbers is only 11.94 percent over a four-year period to FY24, a statistic that is disheartening given that the state has a quarter of India’s taxi fleet.  

 

From many other states, granular data on taxis is hard to come by, since those governments do not keep disaggregated records, Nonetheless, nowhere does the data show any impressive increase. A Niti Aayog estimate of the current total taxi fleet in India puts it close to 2 million. But as the data from states show, this number is unlikely to increase any time soon. The slow pace of growth makes sense as India’s crowded urban areas offer little incentive for large numbers of new taxis to enter the market.

 

Ironically, the actual numbers are in stark contrast to buoyant estimates of the growth of India's taxi business. Mordor Intelligence, for instance, expects the size of the Indian taxi market to hit $44.18 billion by 2030 - this will be nearly double the current estimate of $23.4 billion in 2025, at “a CAGR of 13.55 per cent during the forecast period (2025-2030)”.

 

The market intelligence firm reasons that “increasing demand for ride-hailing and ride-sharing services, increasing demand from online taxi booking channels, and an increase in the cost of vehicle ownership. Compared to other modes of transportation, increasing traffic congestion and low taxi fares are the other major factors driving the taxi market in India”. Using a comparable CAGR, Imarc Group estimates the market will be worth $61.58 billion by 2033.

 

Some of these highly-optimistic estimates have also coloured projections by aggregator firms. Speaking with Business Standard recently, Rapido cofounders Pavan Guntupalli and Aravind Sanka noted “We’re currently in over 35 cities with taxis and aim to be present in every district headquarters. Of 2.5 million cabs in India, only around 500,000 are online. We want to bring them all onto platforms.” 

 

A time to rethink revenue models

 

Led by Uber, the typical business model was one of revenue sharing. The platforms brought drivers and customers together, in return for which it took a commission for each ride. The commission was payable by the drivers and sometimes went up all the way to 20 percent of the fare. This kept drivers hunting for more rides and kept the fares competitive.

 

The new model by Rapido and Namma Yatri will still offer a platform for drivers and customers to meet. However, instead of charging a commission, the companies ask that the driver pay a fixed charge per day, called a subscription fee. Namma Yatri, for instance, says on its website that the maximum daily charge is ₹45. Ola, which recently moved to a similar model, said “The launch of zero percent commission model pan India marks a fundamental shift in the ride-hailing businesses. Removing commissions empowers driver partners with much more ownership and opportunity.”  

 

The challenge for the aggregators is in monetising the model. The platforms cannot capture the upside from more rides, since it is the drivers who will earn the entire fare, while daily revenue for the aggregator is essentially flat. The only way for an aggregator to earn more is if more taxis get on to their platform, and this is what all the subscritpion-model firms are banking on. Namma Yatri claims on its website there it has 6 lakh 'enabled drivers'. Rapido claims it has 2 million active drivers on its platform every month, “making us the largest gig worker employer in the country”.

 

In its first round, Namma Yatri raised $11 million from Blume Ventures, Antler, and Google, in 2024, co-founder Shan MS had announced at the time. Whether the more straitjacketed model can interest investors going ahead will be tested in the next round of funding for it, as well as well as other platforms. A key question is how the platform will pay for the rising cost of maintaining real-time maps, ensure quality - especially safety - for riders, and still offer a profit to investors.

 

To get over this conundrum, state governments have entered the fray. The incentives for the political class are many, since taxi drivers form a powerful interest group. As a result, many state government's are now backing the zero commission model.

 

Since direct government financing is difficult, a way out has been offered by the newly-launched Sahakar Taxi Cooperative, promoted by eight major cooperatives. These are the National Cooperative Development Corporation (NCDC), Anand Milk Union, National Agricultural Cooperative Marketing Federation of India (Nafed), National Bank for Agriculture and Rural Development (Nabard), Indian Farmers Fertiliser Cooperative (IFFCO), Krishak Bharati Cooperative (KRIBHCO), National Dairy Development Board (NDDB), and National Co-operative Exports.

 

Backing them is a white paper issued by the government-run Open Network for Digital Commerce (ONDC), which says shifting to a zero-commission model could increase a driver’s income by ₹136,000 annually, from the current range of ₹80,000-₹100,000. The paper, titled “Driving Digital Inclusion—Open Network and New Business Models in Mobility Apps”, argues how an open network model such as zero-commission offers a compelling alternative, empowering drivers to retain 100 per cent of their earnings. The cumulative effect, it notes, could add up to ₹20,475 crore annually for the 1.5 million drivers across India. The catch is the projected size of the market for that business model to work: the paper estimates that the market size will be $11.64 billion, just a third of  estimates from Mordor and others.

 

Incidentally, the main beneficiary of the new guidelines - the consumer - does not seem particularly impressed. A study for the Competition Commission of India conducted in four cities in 2022 (Delhi, Mumbai, Jaipur and Indore) found that consumers of these taxis did not actually change their bookings or reduce their travel due to surge pricing, the oft-quoted reason for dissatisfaction that the ONDC paper also claimed.

 

Meanwhile, as states develop detailed guidelines for taxi business, Lucknow has joined Bengaluru in banning bike-taxis, while Kolkata allows them to ply. All consumers can do is to expect more noise and policy flip-flops over this key mode of transportation.