Uber, Ola may be forced to raise minimum fares in Karnataka, Maharashtra

Bengaluru: Ride-hailing services companies Uber Technologies Inc. and Ola (ANI Technologies Pvt. Ltd) may have to raise fares in Karnataka and Maharashtra, potentially capping growth, as the states consider imposing new restrictive regulations.

Both Karnataka and Maharashtra have set up committees to look into fares charged by ride-hailing services. The committees will not only look into the upper ceiling—the most these companies can charge—but also mandate minimum fare per kilometre.

The move comes in the wake of complaints and protests by drivers affiliated to their platforms over a drop in incentives and by traditional taxi operators, who have accused the venture capital-backed companies of undercutting fares, which has adversely impacted their businesses.

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“Minimum prices should be implemented to prevent unfair trade practices by aggregators, in which drivers lose out. If the operators cut prices, then the drivers are impacted. This is not interfering with the company’s business model,” said M.K. Aiyappa, commissioner, transport and road safety, Karnataka.

“We have set up an expert committee including an additional commissioner, who will carry out this exercise of determining break-even costs after taking into account fuel and insurance costs and distance covered. We have a formula for this,” he added.

Ola and Uber spokespersons declined to comment.

While both states have an upper ceiling for fares—Karnataka, for instance, does not allow companies to charge more than Rs19.50 per km— fixing a minimum fare may make Ola and Uber less lucrative for consumers.

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Ola and Uber have built massive businesses in India by attracting customers with dirt- cheap prices. Both companies together completed about 500 million rides in 2016, as against about 130 million rides the year before, according to RedSeer Management Consulting Pvt. Ltd.

In Bengaluru, Ola’s cheapest offering, Ola Micro, is priced at Rs6 per km while UberGO costs Rs7 per km.

Such low fares have made Ola and Uber even cheaper than autorickshaws, as well as the likes of Meru Cabs. For instance, autorickshaws charge Rs13 per km in Bengaluru, while Meru Cabs’ cheapest offering, hatchbacks, cost Rs9 per km.

The move to regulate the minimum fare may adversely affect business for Ola and Uber, already struggling with strikes by drivers in Delhi, Chennai and Bengaluru over a drop in incentives and consequently lower earnings.

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“Uber was built on a model that is perceived as side business in other countries but in India, drivers thought it’s a full time job. For consumers, demand will likely fall or at least stagnate due to the higher prices. Consequently, it will impact revenues for Uber and Ola. But, traditionally, Uber has not feared regulation in any other country and they, in all likelihood, will challenge any regulation in India as well,” said Rutvik Doshi, director at Inventus (India) Advisors.

Bengaluru and Mumbai are among the three biggest markets for ride-hailing services, along with Delhi. According to RedSeer, Delhi, Bengaluru and Mumbai account for up to 60% of Ola and Uber business in the country.

According to industry experts, both companies may struggle to get new users on board.

“Ola and Uber are thriving in India primarily because of convenience in booking, pace of getting a vehicle, ease of payments and then the possible lower fare. However, getting new customers in current cities where they are active may become a challenge with this development because a lot of customers tried the services for the first time because of the low fares,” said Sreedhar Prasad, partner, e-commerce and start-ups at KPMG in India.

According to Prasad, ride- hailing services may nullify the impact of higher prices through cashbacks and discounts.