Regulating Taxi Service Aggregators

By Jayati Narain*

Those flying in or out of Kochi in the last few weeks, booking a Uber or Ola may have dealt with some odd requests by their taxi drivers. When being picked up, passengers are requested to meet their drivers outside the departures terminal, and when being dropped off they are warned they might have to take an auto for the last few kilometers, or complete the payment formalities before reaching the terminal.

Similar issues are being faced with those using these services to the train stations and to Lulu mall.

The reason behind these requests is the opposition by taxi unions, against such companies. In Kochi some cars operated by Uber were attacked by local taxi services (http://www.dnaindia.com/india/report-kochi-drivers-of-services-like-uber-ola-attacked-by-local-taxi-drivers-2135757), as had happened in Mumbai a few moths before (http://timesofindia.indiatimes.com/city/mumbai/Scared-Uber-drivers-stay-off-roads-fearing-attacks/articleshow/48474969.cms). Taxi unions are protesting the unfair advantage that these companies enjoy in the market. While companies like Uber and Ola function as taxi operators and are direct competitors to traditional taxi services, they do not have to follow the same pricing mechanism as followed by traditional taxi services. This is due to the fact that at the operations end these companies do not identify themselves as taxi services, rather they identify as IT companies. The business model followed by these companies lead’s to a number issues regarding regulation and licensing.

These regulatory issues are present around the globe. With the growth of disruptive technologies and business models, legislators around the world are grappling with how to amend existing laws to make a place for these companies within their legal structure. The first step towards this has been the coining of the term transportation network companies (TNC). The term refers to the business model followed by these companies ‘an online-enabled platform that connects passengers and drivers using their personal and noncommercial vehicles.'Taxi service aggregators, such as Uber and Ola, provide a technological platform to bring together drivers and riders. The app acts as a way of connecting riders with the driver closest to them. The companies themselves, do not own any of the cars, nor do they consider the drivers employees. They identify themselves as facilitators, partnering with drivers to provide a service. While, at the consumer end they seem to be taxi-company with a convenient app, at the operations end they are very different. This model sets them apart from traditional transportation services, which require separate legislation. Clubbing all these services under the same legal framework is not feasible as their mode of operation, and treatment of drivers is completely different.

Developing the required legal framework has not been an easy task, both from the point of view of the TNC’s and the lawmakers. Each group has it’s own priorities and stakeholders to keep in mind, when framing any sort of regulating policy. This is complicated by the fact that is most countries transport is a state subject, requiring each state or city to frame it’s own laws, based on the specific local situation.

In India it is no different, with transport being a subject on the state list. However, a number of factors have brought these services to a national spotlight, leading to the central government getting involved in the framing of regulations. Issues involving passenger safety, regulating policies, registration and pricing mechanisms have all come together, sparking a national debate on the operation of TNC’s. This debate gets further complicated and confused, when looked at it within the global context, as a number of countries and cities are in the process of incorporating such services while keeping competing interests in mind.

The problems faced by TNC’s in India, can broadly be identified as those relating to safety regulations and the pricing mechanism. The central government has laid out the legal framework outlining regulations regarding TNC’s and has left it to state governments to work out the state specific laws, such as registration and monitoring.

After much back and forth in October 2015, the Central government issued an ‘Advisory for licensing, compliance and liability of on-demand information technology-based transportation platforms.’ The most significant aspect of this has been the distinction made between taxi companies and technology-based aggregators. While the advisory does allow for the business model followed by these companies, it also requires them to take greater accountability of the drivers engaged in the service and take greater safety precautions. While this step is encouraging, it still leaves these companies in a legal grey area. Currently they are placed under the domain of the Ministry of Road Transportation and Highways, coming under the Motor Vehicles Act. In order to operate in any city they are required register under this with the state government. In most state’s they have been required to get the same license as a radio taxi or city taxi service. The reason for this being that, even if these are technology companies they are in the transportation business and should be classified as any other transportation company.

Such a situation raises certain paradoxes in the operation of TNC’s. While the Centre recognizes them as separate from traditional taxi services, states require them to register as such. Even when they register as taxi services in various cities, they are not required to follow the same pricing scheme as traditional taxi and auto operators are. They are faced with opposition from both sides, wherein the state government’s do not recognize them as IT companies, and traditional services view them as having an unfair advantage in terms of price regulations. Much of the national debate surrounding TNC’s and the push back against them have combined these issues, hoping that they can both be resolved together.  But as the experience of various cities is showing, there is no one simple solution. Rather, both these issues- of registration and pricing need to be dealt with separately as each involves different stakeholders and has a different impact.

Within India, Kolkata has been the first city to deal with these issues separately. West Bengal has allowed these companies to register under the IT Act (2000) (http://articles.economictimes.indiatimes.com/2015-01-15/news/58109056_1_radio-taxi-scheme-web-based-taxi-aggregators-taxiforsure). They have separate laws regulating the service aggregator (IT Act) and the actual driver (Motor Vehicles Act). Such a move most closely matches the mode of operation of TNC’s themselves, which do not take responsibility for the driver unless they are specifically operating under the companies banner at the time of an incident.

The logic behind the pricing mechanism set up by the government for traditional transportation services is not something that can easily be found or broken up. This is an issue that is being faced by taxi operators around the world, leading to the recognition of the fact that these structures require a degree of revision. As several writers have argued, the regulation model for taxi companies is outdated, when facing the kind of market competition coming up now (http://www.newyorker.com/tech/elements/the-long-history-of-the-fight-against-uber).

In order to deal with the growing resentment by traditional transport services, TNC’s have tried to incorporate them into their operations. In Kolkata, the city’s iconic yellow taxies have started partnering with Ola (http://www.business-standard.com/article/companies/kolkata-s-yellow-cabs-now-on-ola-platform-115082800928_1.html), and in Chennai, Ola has been running an Ola auto service, partnering with auto-rickshaw operators, a service they are spreading to other cities as well. Such partnerships do not actually have a direct monetary benefit for the TNC, the operator or the consumer, but they have still been positively received. While the traditional operators still have to follow the same pricing structure, they have guaranteed riders and are viewed as embracing the shifting market trends. For customers paying a Rs.10 service charge, is worth the door-to-door by the meter service. For the TNC’s, it is an extension of their brand visibility, and technological interface.

Instances like this prove that there are viable solutions available to these problems. However, in order to achieve them the state government, the TNC’s and the traditional transport services need to work with a level of cooperation.

In Kochi, it is this cooperation that is missing at the moment.

While the state and city government have not openly taken sides, political parties are turning this into a contentious political issue. With parties backing the idea of traditional transport services coming up with a call taxi service, with an app of their own (http://scroll.in/article/765228/in-kerala-uber-and-ola-have-competition-from-the-states-biggest-business-house-the-cpim). Such a move may make their use more convenient, but it does not deal with the issue of pricing, which is where these companies are actually losing out. Unless, the state government tackles these issues directly, the antagonism between these services will continue to grow.

This can be done through following a model similar to that followed by the West Bengal government. By recognizing the TNC’s as IT companies, it makes it easier for the government to monitor and regulate them. As the TNC’s can no longer argue that they have been miscategorized. By partnering with TNC’s traditional operators are able to recapture some of the customers they have lost. This allows them to supplement their incomes, something the government set pricing scheme is limiting rather than facilitating. Until the government is ready to revise the pricing structure, they cannot blame consumers and drivers for moving to services, which are more convenient and affordable.

As customer behaviour is showing, even with the curbed movement, TNC’s are continuing to find passengers in the city. These companies are clearly here to stay, requiring the government to address the fundamental issues, rather then providing makeshift solutions.

*The author is the managing associate of CPPR- Centre for Urban Studies. Views are personal.