Source: Business Standard, Jul 22, 2016
Mumbai/Bengaluru: The Centre is planning to change the Motor Vehicles Act to empower state governments to regulate taxi aggregators like Uber and Ola. This will also allow states to cap fares and end surge pricing.
The move to change the law comes at a time when the San Francisco-based Uber has legally challenged the Karnataka government’s powers to regulate its services. Karnataka was the first state to regulate these services.
Uber claims it is a technology platform and does not come under the Motor Vehicles Act.
Several states have sought to follow Karnataka’s move. Maharashtra has framed draft rules but is waiting for the Karnataka High Court to deliver its judgment. Rajasthan and Gujarat are also mulling similar rules.
Ola and Uber claim peak pricing is not a mechanism they use to boost earnings.
“There is technology in place to tell drivers where the demand is spiking and encourage them to go to those areas,” said an executive. Surge pricing is also used to help Ola and Uber cut down incentives to drivers.
Ola has accepted the Karnataka government’s rules and has received a licence to operate in the state. Uber said it had applied for a licence but had not received it. Both aggregators could not be reached for comment.
In a hearing on July 8, Uber argued in the Karnataka High Court it was being wrongly categorised as an ‘agent’ under the Motor Vehicles Act because it neither sold tickets nor solicited rides. The company has challenged several sections of the new rules, calling them unconstitutional. The court adjourned the hearing to Friday.
Drawing parallels to the hospitality and airline sectors, which increase prices when demand is high, Uber’s counsel Sajan Poovayya said, “Surge pricing does not increase the capacity in airlines. In our case, we are increasing the capacity of cabs on roads.”
Uber, the most valued privately held company in the world, counts, among its investors, Tata group and Google Ventures. It has raised over $12.51 billion in venture funding so far. Ola has raised $1.18 billion from investors like SoftBank and is part of a global alliance with Didi Chuxing in China, Grabtaxi in Southeast Asia, and Lyft in the US.
Uber, far behind Didi in China, does not want to lose India to Ola. It has invested $1 billion in India and has committed a substantial part of the $3.5 billion it recently raised from Saudi Arabia’s Public Investment Fund.
The business model of aggregators allows the platform with the largest number of taxis to control a disproportionate share of the market. Surge pricing, an Uber innovation, allows players to run their business smoothly, ensuring taxis are where the demand is.