Maharashtra’s new rules for app cabs could steer the transport sector backwards

Pavan Srinath November 8, 2016 10 min

Ban them, slam them, suspend their licences or penalise them for flouting rules, the Indian government may do all they can legally to rein in cab aggregators like Uber and Ola, but they simply can’t ignore them or wish them away.

Over the last few years, these ride hailing apps have redefined the way our cities commute and have created hundreds of thousands of jobs. They have also been hauled up time and again by the authorities for breaking rules — caps on surge pricing, passenger safety rules, FDI guidelines.

But, however rough the ride, they are here to stay. A fact that has triggered a scramble among India’s central and state governments to draft guidelines and formulate laws to regulate their operations.

After West Bengal, Delhi, Karnataka and the Centre’s attempts to bring cab aggregators under the ambit of law, the Maharashtra government last month framed draft regulations to the same effect. Most of these newly framed rules fall under the Indian Motor Vehicles Act 1988, a key legislation governing road transport in India.

The Indian Motor Vehicles Act 1988 replaced a similar law from 1939, well before Indian Independence. The objective was to modernise the law to meet the changing transport scenario. The stated objective read: (The law) “takes into account also changes in the road transport technology, pattern of passenger and freight movements… particularly the improved techniques in the motor vehicles management.”

Unfortunately, the Maharashtra City Taxi Rules, 2016, fall short of this mandate. The new regulations won’t just affect the transport options in Greater Mumbai; they will have profound implications on the future of transport in Maharashtra, and set the stage for similar regulations across the country.

The Maharashtra City Taxi Rules, 2016 are blinkered in how they seek to regulate transportation options. They make no attempt to look at what might be possible in the near future, or even at what is being done already  

To get some perspective on this, let’s delve into the two forces driving the changing nature of governments and regulations in India in 2016. The first force — also the raison d’être of this publication — is technology leading disruption in most sectors of India’s economy, leading to the start of dramatic transformations that will play out for many years to come. This produces a new set of winners and losers in the economy, and the politics that go with it.

The second force is the increasing importance of state-level laws and reforms vis-a-vis those of the Centre’s. The 90s and the 2000s saw changing Indian policies on industrial licensing, trade controls and a lot more. This resulted in economic growth and lifted millions out of poverty, putting them on the path to prosperity. The states played a supporting role in this transformation, but the thrust came from New Delhi.

Today, state-level reforms are both a bottleneck and an opportunity for further transformation of India. Transport, agriculture, cities, labour, electricity — are all governed primarily by state legislations. It is the states that have to undertake challenging reforms, with forward-looking principles, in order to propel Indians to greater prosperity. With this backdrop, let’s look at the specifics of what the Maharashtra government is trying to do in the transport sector and what the implications could be.

Crippling the ride hailing business model

At the outset, the Maharashtra government argues that cab aggregators must be regulated like any other taxi service provider. This anchors the new regulations in old paradigms where a taxi service operator owned a fleet of cars, employed drivers full time and had the cars uniformly painted.

The draft rule justifies this by saying: “The application is so designed that the driver of the taxi does not know the destination of the customer nor does he determine the fare to be charged. These are determined by the aggregator’s software. For all practical purposes, the commuter hires a taxi from such an aggregator and the aggregator has offered such a service, and is, therefore, amenable to and required to be regulated alike any other taxi service provider.”

While this is factually correct, Uber and Ola can’t be equated with traditional service providers as they don’t own any cabs and neither do they employ any drivers. They simply provide the technological platform that connects available cabs with passengers. A recent ruling by a UK tribunal that Uber drivers are “workers” who are entitled to the minimum wage and holiday pay, however, questions this model.

The draft rules say that the transport department will set the minimum and maximum fares for cab aggregators. This strikes at the heart of cab aggregators’ business model, crippling the mechanism of surge pricing
The Maharashtra transport department will set the minimum and maximum fares for cab aggregators. This strikes at the heart of their business model, crippling the mechanism of surge pricing

The draft also states that the transport department will set the minimum and maximum fares for cab aggregators, updating them from time to time. This rule strikes at the heart of cab aggregators’ business model, like Uber says, crippling the mechanism of surge pricing. Cab aggregators have a point in asking for no limits — the pricing for ride hailing apps is based on economic models of demand and supply and not on regulation. If the government is genuinely concerned, it can ask them to regularly disclose the number of trips made at surge prices, on the lines of what TRAI does in the telecom sector.

Also, there is no rationale for setting a minimum fare — if an operator wants to set lower fares that benefit commuters, rules should not get in the way. The only possible concern is that of predatory pricing, and that is best left to the Competition Commission of India to determine.

Maharashtra, however, seems to be doing slightly better than Karnataka in acknowledging that cab aggregators can operate well in a tech-enabled world. Karnataka’s rules had regressive provisions like mandatory printed receipts in cabs, a physical panic button, and severe capping of fares, thereby crushing the entire surge pricing model. Maharashtra steps away from most of these — except, oddly, asking for a physical register in every cab for commuters to list grievances!

Missing the opportunity bus

The Maharashtra government seems to have missed the big picture in more ways than one. The rules are blinkered in how they seek to regulate transportation options.

To begin with, they make no attempt to look at what might be possible in the near future, or even at what is being done already. Ride-sharing, aggregated autos and bikes, on-demand buses and minibuses are all beyond the imagination of the rules.

Second, by demanding that the cabs be painted and branded and the drivers be in uniform, the rules will restrict driver mobility between aggregators. Cab drivers often switch between cab aggregators — sometimes within the span of a day, sometimes within a few months — and this mobility is vital to the welfare of cab drivers, and for healthy competition in the sector.

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The new draft rules argue that app-based cab aggregators can be regulated as any other taxi service provider

The rules also set a high license fee for individual drivers, adding a significant entry barrier that could actually lead to increased surge pricing by limiting supply. Instead of trying to generate revenues rather than hiking commercial driving license fees, the government should take a deeper look at how the new transport system will increase its revenues. Cab aggregators are formalising the economy by leaving a digital trail of all payments, which will enable governments to receive more in service and income taxes, offsetting any notional losses from license payments.

The government has set a tight timeline for the registration of the entire cab aggregators fleet without modernising the system to facilitate quicker registrations. The transport department should have adopted an online, self-registration system which could have made the registration of tens of thousands of cabs possible in weeks, let alone months.

Maharashtra has also ignored an opportunity to re-examine how driving licenses are framed and issued in India. The line between commercial licenses and personal driving licenses is blurring, and the current system is untenable. There is no way of assuring that those being issued licences are actually capable of driving safely on Indian roads. Ironically, service providers have bear the burden of this humongous public failure, and are held liable for any lapses.

What about safety?

The rules try to over-regulate most aspects of cab aggregator services — from pricing to licenses — but curiously fail to make sufficient provisions for safety. This includes the safety of both the driver and the passenger.

Cab aggregators are the gatekeepers of both drivers and passengers on their platforms. They develop their own rules for bringing more drivers and cars on board for passengers. They also take a call on removing passengers from the platform for rude or unacceptable behaviour.

However, when cab aggregators are expanding in new cities, it is possible that they are lax about these rules. For instance, when an aggregator is aggressively trying to increase its market share and onboard new drivers in a city, it may not take negative feedback and bad ratings for drivers very seriously. This would mean that there could be systemic reasons for bad drivers to continue to imperil commuters, and cab aggregators should be held accountable for this.

The rules try to over-regulate most aspects of cab aggregator services — from pricing to licenses — but curiously fail to make sufficient provisions for driver and passenger  safety

The solution to this challenge to safety is strong disclosure norms mandated by law. For example, cab aggregators could be asked to send the statistics of complaints received against their drivers and action taken in each case. Aggregators should be required to have an escalation framework based on the nature of complaints — from warnings, internally levied fines, removal from the platform, police complaints. Cab aggregators could also be mandated to disclose their actions on a monthly or weekly basis to the transport department, including sharing driver/passenger details. This could be accompanied by quarterly, anonymised public disclosures to retain the trust of commuters.

Immediate commuter and driver safety is the second challenge. If someone in a cab is behaving dangerously, people need to be able to contact the police and get to safety at the earliest. So far, regulations like those in Karnataka have tried to solve this problem by hard-coding solutions like a physical panic button, or mandating an SOS system on the smartphone app.

Government regulations need to set strong principles — not rules — to govern immediate commuter and driver safety. While aggregator apps do have some safety features, Factor Daily’s Ramarko Sengupta showed how they may not be effective, and how it takes forever to send an SOS. Regulations could mandate that someone in danger should be able to get an alarm out, in say five seconds. It is the aggregator’s responsibility to prove that their safety solution meets these norms.

Today, we are using smartphone apps; tomorrow, we may be using a smartwatch or a VR headset or something not yet conceived in the future to hail rides. As devices keep changing, the government should stay away from hard-coding safety solutions in devices.

Watching its own back

The Maharashtra government needs to be given due credit for intelligently managing the incumbent black-and-yellow taxi operators, who are set to lose the most because of competition from cab aggregators. The new rules exempt these taxis from almost all the regulatory burdens — while allowing them to easily come onto any aggregator platform. This is astute management of the political economy, where powerful lobby groups like taxi unions can easily halt the reform process, and brings them on the government’s side. It is debatable whether the Maharashtra government has gone too far in factoring provisions for black-and-yellow taxis, though. Pollution norms, license fees, air-conditioning norms and more have been diluted for this traditional mode of transport in Mumbai.

It is also interesting to note that the largely migrant auto drivers who operate everywhere except in the heart of Mumbai appear to have been completely ignored so far. It’s perhaps because of these special considerations that the rules focus only on the greater Mumbai area for now, and ignore Pune and other cities.
In all, the Maharashtra government’s efforts at regulating the new city transport sector fall well short of the ideal, and miss many opportunities for an overhaul of transport laws. There is little in these regulations that foster innovation, encourage the entry of new players, or support the technological disruption of Indian cities. In fact, it’s quite the reverse. It’s disruption, interrupted.

Pavan Srinath is a Fellow for Smart City Governance at the Takshashila Institution, Bangalore. He tweets at @Zeusisdead.


Disclosure: The Takshashila Institution has received a donation in the past from Bhavish Aggarwal of ANI Technologies (Ola Cabs). None of Takshashila’s donors have any influence on the analysis and the views put forth by the institution and by the author.