By Siddarth Gore

The Government of Karnataka has decided to take matters in its own hands when it comes to pricing of transportation service providers like Uber and Ola. The reason given is that such surge pricing is ok when applied to airlines but is not acceptable when applied to app-based taxi services because they are used by the middle class. There is an urgent need from this middle class, which the government is trying to patronize, to speak against this action. The reason is a simple economic one. When prices go down, so does the supply. The trade-off is that we might get a cheaper ride but we will need to wait much longer to find a cab. The government does not care about the time we lose waiting, but shouldn’t we?

There is a way of ensuring the prices are right without hampering the supply. The government should reduce entry barriers and encourage more players to get into this market. Competition takes care of both the price and service quality. There are enough examples in the telecom and airline sector which has benefited the customers immensely post liberalization. But the government is purposefully moving in the exact opposite directions with the new rules. It has some bizarre requirements in terms of the capacity of vehicles, number of vehicles, where they can stop and pick-up passengers and much more. It is trying to regulate this new market as if it is a traditional auto-rickshaw or taxi market when the truth cannot be any further from this.

Public transport has been the monopoly of the government up till now. Even the private players like auto-rickshaws are restricted through limited licensing and are highly regulated. This was done because these were considered important urban services but were also making losses most of the time. But with the advent of new technologies and new business models these assumptions are no longer valid. There has been a refreshing amount of innovation in this sector with varied services from car-pooling to two-wheeler taxis being offered. Thankfully so, because this sector is in urgent need of innovation. Building more roads or flyovers is not going to solve our urban transportation problems. Nor can it be only solved by a Metro or a BRT system. The existing cars and private vehicles need to be used more efficiently. These new innovations provide an opportunity for doing exactly that.

There are people who are putting off their purchase of new vehicles because they are finding it more convenient and cheaper to use on-demand cabs than buying their own car. And this is without any price fixing by the government. You can force these companies to charge a lower price but then you cannot guarantee the same level of service. If the convenience is lost, then people will revert to buying their own vehicles. This is not good news for a city like Bangalore which has 55 lakh vehicles on road and adding them at an alarming rate of 10% per year.

The primary focus of government regulation in this sector needs to be on safety. The new rules do make some good provisions for this. But much more can be done. Apart from the physical and procedural safety measures the government should mandate transparency when it comes to complaint reporting and resolution. All the relevant statistics must be made available for the authorities regularly. This will help improve the safety as well as the quality of service for the customers. One important thing to consider here is that the safety of the driver is also an important aspect to be considered which has been largely ignored up till now. The app-based system is much better for this than a standard flag-down system since the profile of the customer is also registered and the driver can report any misbehavior on the customer side as well.

Being the IT capital and start-up nerve center of the country Bengaluru should have been at the forefront of progressive thinking and smart governance. Instead it has become the first one to implement this regressive policy. Maharashtra is looking to follow the lead and do the same in Mumbai and Pune. This is still a nascent sector with much potential for solving our urban transportation problems. It needs to be nurtured by encouraging more competition and innovation. We cannot stifle this budding field with rules meant for the 20th century. Cities do not become smart just by government allocating budgets for it. They become smart due to private enterprise and government providing a progressive framework based of sound economic principles. If the government engages in populist measures like price fixing, we cannot hope to see our cities becoming truly smart any time soon.

Siddarth Gore is a Research Scholar at the Takshashila Institution and he tweets @siddhya

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