Fixing what isn't broken

The new ride-hailing regulations are ill-conceived

The Indian state has an unfortunate habit of trying to “fix” what is not broken. This interventionist mind-set is now playing itself out in one of the few sectors that has managed to provide growth in employment in the past few years, namely the ride-hailing business. The Union Ministry for Road Transport and Highways has just issued guidelines for motor vehicle aggregators under the Motor Vehicles (Amendment) Act of 2019. The guidelines are meddlesome and will leave riders, consumers, and businesses all worse off. Not all the interventions are unnecessary. For example, requiring the app to enforce a mandatory stoppage after 12 hours of work will help reduce the danger of driver overwork, as well as ensure that individual drivers are not abusing the app by substituting others in their own off time. Yet most of the other requirements are not just unnecessary but downright counter-productive, and reveal of a lack of application of mind and of basic economic principles.

Consider, for example, the requirement to restrict “surge” prices. This is when an app charges several multiples of the normal price in order to attract more drivers to underserved areas or at times when there is excess demand. On occasion, prices could be more than five times the regular fee. But all riders who click on this fare are given complete and transparent warning that they are paying that much. So why precisely are a group of bureaucrats in New Delhi meddling in that contract which has been freely entered into? The point is to ensure that more drivers respond to the higher surge price by entering these underserved areas and thereby make it easier for people to get the transport they need there. As more drivers move into such areas to service the demand surge, prices also begin to come down.

Consider also the other occasions when surge prices are common at times such as festivals, when many riders may want transport, but drivers might choose not to come out at regular fares. Those drivers who are giving up their festival time surely deserve excess compensation at the rate the market can bear. The ministry, by inexplicably capping surge pricing, is thereby hurting not just the riders who will be denied transport but those drivers who would be receiving extra compensation. Not only does this take away essential price flexibility, but in order to protect their own income and rider fees, the aggregators will have to raise their base fares, which hurts the most price-sensitive consumers.

Other new regulations are equally pointless. For example, the requirement that the individual who cancels a ride — whether driver or passenger — should pay 10 per cent of the fee will be counter-productive. The fact is that this will lead to stand-offs between driver and passenger as to who will be forced to cancel first. It will make the entire experience more unpleasant. The regulations are therefore ill-conceived and poorly drafted. In general, the broader point is that the government should have more hesitation in wading into complex and still-developing markets with blunt-force regulations that will do more harm than good.