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Govt norms for cab firms may dampen investments

The new guidelines are reminiscent of the clash that played out in the courts in 2016 between regulators and operators like Ola and UberPremium
The new guidelines are reminiscent of the clash that played out in the courts in 2016 between regulators and operators like Ola and Uber

  • The centre’s guidelines proposes to bring Ola and Uber among others under a regulatory framework as a measure to protect customers from getting “fleeced” by surge pricing
  • The decision to cap commissions at 20%, analysts said, is not aligned with demands by the IFAT demands of limiting it to 5-10%

The new guidelines for cab aggregators may dampen investments in the sector, impede the revival of the ride-hailing business and go against the contours of the Centre’s ease of doing business metric, industry executives said.

The Motor Vehicle Aggregator Guidelines 2020 released on 27 November proposed a cap on surge pricing and company commission, and also levied penalties on driver cancellations, among measures that experts said could affect the fundamental business model of companies operating in this space.

The guidelines, which are binding only after the state governments issue the rules separately, come at a time when the government of India has proposed relaxation of land, labour, farm and industrial laws, to attract big-ticket investments and strengthened regulations around data protection and cab aggregators among other sectors.

“No consultations were held with the industry and reasonably far-reaching guidelines with significant consequences were issued. If you read through the fine print, it does look like over-regulation and excessive requirements for a very nascent industry that is going to seriously set us back as a category and delay the recovery. It is one of the most regressive set of guidelines," said a top executive at a ride hailing firm, requesting anonymity.

The Centre has denied allegations that the guidelines were formulated in a non-consultative manner.

Operators also said that the requirement to share information between aggregators is impractical as it “exposes competitive data". The guidelines formally recognize the sector, but the timing of these new rules is likely to put more pressure on their recovery, said Ujjwal Chaudhry, associate partner, Redseer. “Capping of prices, commission and some of the other ways that the regulations specify how companies should operate their business...those ultimately become a deterrent to the ecosystem that will eventually lead to its stagnation."

The guidelines could make business for aggregators less profitable and are likely to be an entry barrier for new startups in this space and also possibly lead to slow growth of existing businesses, said Amarjeet Singh, partner, tax, regulatory and internet business, KPMG in India.

However, under the new regulated regime, capping of surge could lead to more bookings by customers, Singh said. “The pandemic has pushed existing customers to opt for private transport rather than shared/public mobility vehicles, but the changes because of the new guidelines may help bring back demand closer to pre-covid levels," he said.

The regulations would also bring a greater degree of operational stability, ensure safety of the rider and driver, and prevent unjustified imposition of surge pricing.

Surge pricing compensates drivers for taking up rides during peak hours and is fundamental to the demand-supply economics in which these companies operate, the person said.

The decision to cap commissions at 20%, analysts said, is not aligned with demands by the Indian Federation of App-Based Transport Workers (IFAT) of limiting it to 5-10%. The new guidelines are reminiscent of the clash that played out in the courts in 2016 between regulators and operators such as Ola and Uber when Karnataka introduced regulations to cap surge pricing among others under the On-demand Transportation Technology Aggregators Rules.

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