Extract: Rebooting India: Realizing a Billion Aspirations4 min read . Updated: 08 Nov 2015, 06:26 PM IST
New kinds of businesses are emerging on the back of technological innovations. Nandan Nilekani and Viral Shah unpack what this means for the regulators of industry
Nandan Nilekani and Viral Shah suggest a road map for a “technology-enabled social transformation of India" in Rebooting India: Realizing A Billion Aspirations. They look at the applications of technological innovations for financial inclusion, education, universal healthcare and energy, among other sectors, and suggest “big ideas" to save the government an estimated ₹ 1 trillion each year.
Nilekani is a co-founder of multinational firm Infosys and former chairman of the Unique Identification Authority of India. Shah is a co-creator of the Julia programming language.
In the chapter “The Role Of Government In An Innovation Economy", Nilekani and Shah talk about the challenges of regulating new businesses like service aggregators, and suggest some solutions. Edited excerpts:
When Uber made its Indian debut in 2013, it became one of a clutch of taxi services debuting an unfamiliar business model. Instead of calling a central number, you could book a taxi using an app on a smartphone, track its location and arrival time via GPS, and pay via a credit card online. People were enthralled by the experience, and Uber experienced a surge in popularity.
However, this auspicious beginning was soon marred by regulatory troubles. First, the Reserve Bank of India objected to Uber’s payment model, which violated the RBI mandate of a two-factor authentication for all credit card payments—designed to increase transaction security and reduce fraud. Uber initially managed to avoid this requirement by routing payments through a foreign gateway, since foreign exchange payments are exempt from the RBI’s authentication rules. However, the RBI demanded that Uber either follow the same rules that applied to India-based taxi service providers or shut shop.
Worse was to follow. In December 2014, an Uber driver in New Delhi was accused of raping a female passenger. The government responded by banning Uber in the capital region, and the events that followed conclusively proved that a “service aggregator" like Uber, which claimed to only be a platform connecting drivers with riders rather than a commercial taxi service, occupied a regulatory grey zone.
Whose responsibility was it to ensure that Uber drivers had passed police verification checks? While the rules were clearer for commercial taxi services, what were the obligations for an aggregator like Uber, and could it truly claim to offer a safe and secure service to its customers?
More troubling facts soon came to light. The driver was a habitual offender, but had managed to obtain a police verification certificate that authorities claimed was forged. He had registered with Uber under a false name, and prior to assaulting his passenger, he simply switched off the app on his phone tracking the ride. Given that Uber was operating in India as a technology company rather than as a transportation business, whose job was it to monitor these safety norms and take action when they were flouted? Whether or not banning the service completely was warranted, it served no purpose unless it was also accompanied by the introduction of rules and regulations designed specifically to apply to service aggregators.
Uber is not India’s only service aggregator. Thanks to Airbnb, anyone can convert a spare room into a hotel without complying with hospitality industry regulations. eBay allows people to freely buy and sell goods from each other. All these services work as platforms, with buyers and sellers rating each other—a reputation that builds up over multiple transactions, making customers more inclined to use a service. Normally, this would require a regulator...
The sharing economy is also giving rise to a new class of “microentrepreneurs"—small-scale service providers who can now find customers through an online marketplace... In urban India, you can now use apps to find cooks, cleaners and plumbers in your locality. There is a start-up for every possible opportunity that exists of organizing the unorganized.
A recent report from the McKinsey Global Institute points out that “India is a nation of small-scale, independent service providers" and by building digital marketplaces, these service providers can broaden their customer base and scale up for growth, whether they are graphic designers, nurses or carpenters. Such collaborative platforms redefine the relationship between employer and employee, and the regulatory framework that supports this relationship—tax laws, employment laws, worker rights—needs to reshape itself.
The sharing economy and the services built around it are here to stay. One estimate places its current global value at $15 billion, a number projected to rise steadily. It draws from both public and private resources, such as the Internet, GPS and mapping services, as well as privately developed payment systems—credit cards, mobile wallets and the like, and depends heavily on establishing a culture of trust and reciprocity, whether that is through obtaining favourable reviews or conducting background checks when needed. We need to be ahead of the curve when it comes to building the regulatory frameworks that will allow such collaborative services to flourish while safeguarding the rights of the people. Those who pioneer new business models in India will need to adapt our regulatory frameworks, given that the state’s capacity to manage law and order and guarantee citizen safety may be inadequate.
For example, taxi service providers may be required to build stronger safety platforms. This might mean that they run their own verification checks in addition to following the mandated requirements, ensure that only registered drivers operate vehicles, and that the tracking app on the driver’s phone cannot be switched off while a ride is in progress. Some services have launched alert notifications, like Ola’s SOS feature; in an ideal world, such a feature would be directly linked to the local police system. While transport service aggregators may be making the headlines right now for their regulatory troubles, it is naive to assume that such issues will not arise in other areas of business. The government needs to be prepared.