Skip to content

The New Regulatory Guidelines for Ola and Uber: Thumbs Up or Down?

The 26-page guidelines issued by the union ministry on November 27, titled 'Motor Vehicle Aggregator Guidelines,' include a s

On Friday, the Union Ministry of Road Transport and Highways (1) has issued new guidelines for the cab aggregators like Uber and Ola. According to the new standards, a cap on the commission charges 20% of the total fare. It has also put a cap on the price surge to 1.5 times the base fare.

Other than that, the new guidelines also cover the aspects of drivers’ safety and welfare.

Cab aggregators seem to be appalled over the Union government’s price cap in the new guidelines, even though the base fare is as per the WPI, Wholesale Price Index.

Both Ola and Uber have not yet responded to the guidelines to formalize the aggregator cab sector, which hitherto had different rules and sets according to various states.

According to an industry source (2), the companies are not happy, especially when considering their initial feelings. Even if the WPI marks the rising fuel costs, aggregators are concerned with surge pricing limits. They are also uptight about additional responsibilities since they also have to take care of their drivers on the platforms.

Fixing fares has been a controversial issue in Karnataka. The state government notified fares in 2018 based on the vehicle’s price and class (3). For instance, Sedans would attract higher prices, whereas; hatchbacks would get lower fares.

Even though WPI linked base price may result in higher passenger fares, it would limit its profit margins. Surge pricing is the best way for these aggregators to make profits, and as the source points out, the high base price may also discourage passengers from using aggregator services.

However, several reports also suggest that there are several long-term benefits of the new guideline even though it may seem difficult for the cab aggregators at the moment.

But before looking more into the merits of the new guidelines for cab aggregators by the union ministry, one needs to note all the critical points of the ‘Motor Vehicle Aggregator Guideline.’

The Highlights

According to the new guidelines, the aggregator can charge a fare 50% lower than the base fare and a maximum surge pricing of 1.5 times the base fare. The driver of a vehicle integrated with the company would receive at least 80% of the charge applicable on each ride. The aggregator would receive the remaining amounts for each ride.

Moreover, the state government may direct two percent over and above the state’s fare for amenities and programs related to Aggregator-operated cabs, which have helped reduce traffic congestion to a great extent and reduce pollution.

The guideline also took care of the cases where there are no fixed transportation charges for ride-hailing platforms. Notably, in the states where the state government has not determined the city taxi fare, an amount of 25 to 30 INR shall be the base fare for fare regulation.

Moreover, the companies must also ensure that each driver integrated with the aggregator has health insurance for an amount not less than 5 lakh INR with the base year 2020-21 and increased by 5% each year. They also need to ensure the term insurance for each of their drivers integrated with the respective platform for an amount not less than 10 lakh INR with the base year 2020-21 and increased by 5% each year.

Additionally, aggregators must conduct a refresher training program at least once a year. They must ensure that driver shall not be logged in for an aggregator for more than 12 hours on a calendar day. There is a mandatory 10-hour break for the driver after a login extending 12 hours.

The aggregators would also need to develop a mechanism on their app to ensure drivers engaged with more than one aggregator do not drive more than a cumulative period of 12 hours. It includes either on their or another aggregator’s app to safeguard the driver, passenger, and road users.

The Mixed Reaction

Moreover, the guidelines also direct aggregators to install a panic button and GPS tracking devices in taxis, a rule which these companies have resisted in Karnataka for more than three years (4). According to the new guidelines, they would also need to add a fire extinguisher and manual overriding of the central locking system as additional directions.

“It is positive in terms of formalizing the sector as well as increasing the consumer trust on aggregators through improved safety regulations. But the overall impact of these guidelines on the ecosystem growth would be negative. Capping surge and platform fee would reduce the earnings of five lakh drivers besides increased prices and higher waiting time for 6.8 crore passengers using it for commute requirements.”

– Ujjwal Chaudhry, Associate Partner Consumer Internet at Redseer (5).

The new rules came when ride-hailing platforms observe revenue drop as travelers turn to personal vehicles to ensure safety and social distancing to reduce the risk of catching the novel coronavirus.

The demand for taxis is further impacted since several companies have continued to mandate remote working rules. The new rules also allow aggregators to offer pooling services on private cars, but it comes with a daily limit of four intra-city rides, and two inter-city rides a week.

In the 23-page document, the ministry stated that they have rolled out the new guidelines to meet the ‘objective of reduction in traffic congestion and automobile pollution, and effective asset utilization.’

While firms like Uber (6) and Ola (7) have long advocated permitting private cars for ride-hailing, the government has been wary due to safety concerns. The move could also face opposition from existing drivers who are already grappling with low demand for shared transport (8).

A Regulatory Framework Attempt

The Union ministry issued these new guidelines to make aggregators accountable and responsible for their operations while ensuring customer safety and driver welfare.

According to the ministry, surge pricing results from the demand-supply mismatch. It happens when the number of customers who try to book rides is more than the number of available vehicles or drivers. It is one of the highest grouses of the customer.

“This will enable and promote asset utilization which has been the fundamental concept of transport aggregation and also substantiate the dynamic pricing principle, which is pertinent in ensuring asset utilization per the market forces of demand and supply.”

– The Union Road Transport and Highways Ministry (9).

The new rules would also ensure eligibility conditions for a company to be an aggregator. It includes vehicles and drivers compliances, apps and websites, fare regulation, drivers’ welfare, and evolving concepts such as private car ride-sharing and carpooling.

Additionally, the recently amended Motor Vehicles Act has built a new category of cab aggregators (10). It recognizes and defines aggregators as digital marketplaces or intermediaries. Passengers can use them to connect with a driver for the commute. The new regulatory framework would also ensure the same.

While addressing to the chief secretary of all states, the transport ministry stated in a letter that these guidelines would offer a guiding framework to the state governments and union territories to consider for the license issuance and regulating these companies’ businesses.

The guidelines have also directed these aggregators that the data generated on their app is stored on an Indian server to ensure data localization. The data shall be stored for a minimum of 3 months and a maximum of 24 months from the date of data generation. And the data shall be made available to a state government according to the due law process.

The Much Needed Regulation

App-based cab aggregators such as Ola and Uber received restrictions from the Indian government from hiking up fares in high demand times. Even though the development came relatively late, it was a much-needed regulation.

According to a survey of LocalCircles, a community-based social network (11), conducted back in 2018, it founded that surge pricing is the major problem for users. The issue of drivers canceling rides follows it. According to the survey poll with more than 20,000 respondents from over 200 districts in India.

During regular hours when demand is not high, the Indian authorities stated that the ride-hailing platforms could charge a fare that is 50% less than the base fare. The cancellation fee is set at 10% of the total cost up to 100 INR for both drivers and riders.

Before this, the government did not keep tabs on how much fare these app-based riding services could charge. It is worth highlighting that last year, the Union ministry had recognized the service under the Moto Vehicles Amendment Act. But it did not notify any guidelines at that time.

The union ministry had also added that the entity has to set a 24×7 control room to ensure that the vehicle in the direction of the firm keeps uninterrupted contact with the control room. The guidelines mandate that aggregators are not allowed to do business until the state government grants them the license. The violation of the licensing norm would impose a 1 lakh INR penalty and lead to the license cancellation.

The aggregator must register under the Companies Act, 1956 or 2013 to get a license. They could also register under a cooperative society under the Cooperative Societies Act 1912, formed by drivers or motor vehicle owners association. The aggregator can also register a company in India with the licensing fee set at 5 lakh INR with five years of validity (12).

Would it Make Uber and Ola Rides Cheaper?

Even though the new rules had a mixed reaction from the aggregators, it could be good news for lakhs of people across India.

The government’s decision to cap surge pricing charged by these ride-hailing platforms would make Ola and Uber rides cheaper for thousands of commuters. The government credit that the decision would promote and enable asset utilization (13).

According to the guidelines, the move will substantiate the dynamic pricing principle. It is relevant to ensure asset utilization under the market forces of demand and supply.

The rules change would also benefit the driver of a vehicle integrated with the aggregator since they would now receive around 80% of the fare applicable for each ride. The guideline stated that the state government would share similar share fixation for other vehicles integrated by aggregators in the relevant state.

Notably, it is a new setback for the Softbank-back ride-hailing firms who are already struggling to improve their finances in the key markets.

The cap on the fare and actual insurance costs would also raise Uber and Ola’s operation costs in India. Notably, both companies have eliminated jobs in recent times due to the pandemic and consequent cost-cutting (14).

It is also worth highlighting that India has attracted several giant international firms in recent years as they look for their next growth market, but have entered an unprecedented recession (15).

Nevertheless, both Ola and Uber dominate the app-based cab aggregators in India. They both claim to lead the market. Even though SoftBank, a common investor between the two platforms, recently stated that Ola has a slight led over Uber in India.

The Public Interest

With the new guidelines coming into effect, the cab-hailing firms stare at license suspension on multiple grounds. These companies can face suspension if they fail to ensure their riders’ safety or charge high rates repeatedly. They may get a hiatus from the authorities even if they fail to comply with drivers’ contractual obligations.

If an aggregator receives more than three suspensions in a fiscal year, it would lose its license and be forced to stop its operations immediately.

According to provisions of the new aggregator set rules, aggregators may offer pooling facilities to only those rides with KYC, Know Your Customer details, and travel along the same route with varied stoppages under a virtual contract via the app. Additionally, female passengers seeking to avail pooling would get the option to pool only with other female passengers.

The ministry is considering the business of ride-hailing platforms as a service offered by the aggregators to serve the broad public interest in employment generation and cost-effective and comfortable available commutation facilities.

“It is heartening to see that most of our recommendations have been accepted, and we strongly believe that they will increase consumer trust and predictability in taxi aggregator platforms.”

– Sachin Taparia, Founder and CEO of LocalCircles (16)

He added that if a passenger can have a high degree of certainty that the drivers won’t cancel their ride last minute and never pay more than a certain amount of money for a ride, they would use the services more.

According to Sachin Taparia (17), compliance with these rules may be short-term pain for the aggregators, but it could also be a medium and long-term gain for the firms. For instance, when the government made it compulsory for e-commerce companies to disclose MRP, Maximum Retail Price, and products’ expiry date on their apps and websites. It has led to an increase in consumer trust in e-commerce platforms.

Positive Changes for Cab Drivers

For a long time, driver associations have complained about how aggregators have been steadily increasing their commission and reducing their wages for some time. They complained that during the logging on the platform, these aggregators would offer them high incentives.

For example, in 2015, drivers were charged a minuscule fee that left them over 90,000 to 1.5 lakh a month. These companies are charging these drivers at exorbitantly high commission prices that have pushed the cab drivers to work time, from 14 to 16 hours a day.

“At present, they are charging 25 to 30 percent commission on every ride merely for being a broker. It is too much. Moreover, the incentive we used to earn earlier has come down drastically over the years.”

– Shaik Salauddin, National General Secretary of Federation Of App-Based Transport Workers (IFAT) (18).

Hence, compared to 2015, drivers’ earnings have reduced by 60 to 70% in the pre-covid levels. Therefore according to the new guidelines, no driver can work for more than 12 hours every day. And if a driver works for 12 hours in a single day, he would have to compulsorily take a break for 10 hours before he could resume.

Currently, a driver partnered with ride-hail apps are making up to 74% of the ride fare after the tax deductions, But now, they would keep at least 80% of the ride fare. Moreover, these cab aggregators would also have to offer their drivers compulsory health insurance of 5 lakh INR and term insurance of 10 lakh INR, with a 5% increase every year (19).

The Final Note

The union road transport and highways ministry issues the new guidelines to bring can ride apps like Ola and Uber under a regulatory framework. It attempts to make aggregators accountable and responsible for their operations while ensuring customer safety and driver welfare (20).

It would ensure a company’s eligibility conditions to become an aggregator, compliance about vehicles and drivers, aggregator website and app, fare regulation, welfare, and other evolving concepts.

Moreover, the new guidelines allow authorities to suspend these cab-hailing aggregators’ licenses if there is a systemic failure to ensure the rider’s safety and the driver. It also includes repetitive instances of financial inconsistencies considering the fares charged to riders, unjustified surge pricing, financial swindling, among others.

The new guidelines are working in favor of the government’s aim to govern shared mobility, reduce pollution and traffic congestion, offer ease of doing busines, consumer safety, and driver welfare.

One can expect that the new regulatory guidelines would address the daily problems of rides who have long complained about higher surge rates and lack of cab aggregators enforcements.

Notably, state governments would have to follow the center’s guidelines while issuing an aggregator’s license.

The ride-sharing and carpooling models of Ola and Uber are severely impacted amid the on-going COVID-19 pandemic. During this uncertain time, it is warranted that the aggregators would not be accomodating to the new guidelines.

The aggregators may find these rules a short-term pain. However, the new guidelines would serve positively in the mid and long term.