Karnataka on Wednesday became the first state to frame rules mandating taxi aggregators such as Uber and Ola to end surge pricing, stick to state-prescribed fares, fix digital meters with printers, and register their services with local transport authorities.
The move by the state government comes as a blow to both Uber and its local rival Ola, which have built their services around the on-demand model that calls for prices to surge as demand rises.
Neighbouring Maharashtra has issued a consultation note on similar lines, but has not yet officially announced the rules.
India's taxi-hailing market is estimated at $1-1.2 billion (Rs 6,600-7,900 crore) in annualised gross booking value as of February 2016, according to RedSeer Management Consulting, a research and advisory firm that tracks online businesses in India.
“This is completely against the business model of Ola and Uber. These companies cannot survive in Karnataka as the model looks using smart algorithms to predict demand and supply of taxis for consumers,” said Anil Kumar, CEO of RedSeer Management. “They may have to fight it in the courts.”
Bengaluru, the capital of Karnataka, is the hub of taxi-hailing app companies. Uber piloted its India service in the tech capital by offering luxury cars for customers who hailed the cars through its app. Ola, which primarily offered a similar service for customers through call centre and website, moved its headquarters to the city and migrated its offerings on the app.
Bengaluru is also among the largest markets for these companies given an abundance of IT workers and clogged roads that deter people from driving their own cars. Uber has an estimated 30,000 cabs on the city’s roads. The company had earlier said it would grow its presence in Karnataka to 100,000 cabs in the next few years.
Ola has 60-65 per cent market share with Uber holding the rest, according to a February data from RedSeer Consulting.
Both the companies have pledged to invest a combined $2.25 billion (Rs 15,000 crore) to grow the on-demand cab market in India over the next few years. Uber, which is valued at $62 billion, and Ola, which is backed by SoftBank, have adopted an open-cheque policy to win in India, splurging money on discounts for riders and incentives for drivers.
The fees for obtaining an aggregator licence in Karnataka has been set at Rs 1 lakh for up to 1,000 taxis; Rs 2.5 lakh for up to 10,000 taxis, and Rs 5 lakh for higher number of taxis.
The state government has, however, relaxed the norm for selecting drivers with the minimum tenure of residence in the state being dropped from six to two years. Apart from that, Karnataka has asked for driver partners to have a working knowledge of Kannada and preferably know English.
Drivers will be allowed to work for multiple aggregators simultaneously. However, they will not be allowed to do business independently.