'Govt norms for cab aggregators regressive, will dampen investments'

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 into the sector, impede post-covid 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 to cap surge pricing, company commission, levies penalties on driver cancellations and other measures that, experts said, could affect the fundamental business model of companies operating in this space.

“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, which is going to seriously set us back as a category and delay the recovery. It is one of the most regressive guidelines,” said a top executive at a ride hailing firm, requesting not to be named.

This could impact company revenues that are earned through commissions, future investments and expansion plans and alter their business model, the person said.

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

The guidelines, that becomes binding only after the state governments (with or without modifications) issue the rules separately, comes at a time when the government of India has proposed relaxing of land, labour, farm and industrial laws, albeit contentious, to attract big-ticket investments and toughened regulations around data protection and cab-aggregators among other sectors.

The new guidelines are reminiscent of the clash that played out in the courts in 2016 between regulators and operators like Ola and Uber when Karnataka introduced regulations to cap surge pricing among others under the On-demand Transportation Technology Aggregators Rules.

An analysis by consultancy Redseer showed that the ride- hailing business in Bengaluru grew only 13% between January, 2017 and January, 2020 as a result of the earlier regulations as against 52% growth in overall metro cities.

Analysts and investors said the new aggregator guidelines may see some changes when state governments issue their own rules.

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 and also levies penalties on driver cancellations. The centre has also 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”.

Ujjwal Chaudhry, associate partner, Redseer said that while the guidelines formally recognise the sector, the timing of these new rules is likely to put more pressure on their recovery.

“Capping of prices, commission and some of the other ways that the regulations specify how companies should operate their business...those areas ultimately become a deterrent to the ecosystem which will eventually lead to its stagnation,” he said.

Amarjeet Singh, Partner - Tax, Regulatory and Internet Business at KPMG in India said that the adoption of these guidelines could make business for aggregators less profitable, likely prove to be an entry barrier for new startups in this space and also possibly lead to slow growth of existing businesses.

The decision to cap commissions at 20%, analysts said, is not aligned with demands by the Indian Federation of App-Based Transport Workers (IFAT) demands of limiting it to 5-10%.

Singh said that under the new regulated regime and capping of surge could lead to more bookings by customers.

“While the pandemic has pushed existing customers to opt for private transport rather than shared / public mobility vehicles, the changes due to the new guidelines may help bring back demand closer to pre-covid levels,” he added.

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