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Moneycontrol

Budget 2021

Associate Partners:

  • SMCSamsungVolvo
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Ola, Uber rides likely to get cheaper as government caps surge fares

The government on November 27 came out with a set of guidelines to regulate cab aggregators in the country.

November 27, 2020 / 07:26 PM IST

The government on November 27 capped the “surge price” asked by cab aggregators such as Ola and Uber in times of high demand to 1.5 times the base fare. It also restricted the discount offered by them to 50 percent of the base fare to limit fare volatility.

Cab operators follow a dynamic pricing model wherein price of a ride automatically rises when demand outstrips supply within a fixed geographic area.

In states where the taxi fare has not been determined by the local government, Rs 25/30 shall be the base fare for regulation. Similar fixation shall be done by the state government for other vehicles integrated with aggregators. Like cabs, some companies also offer bike rides. The base fare varies from state to state.

These norms have been laid out in the 26-page Motor Vehicle Aggregator Guidelines issued by the government on November 27 that seek to define and regulate cab aggregators in the country.

Also read: Centre defines aggregators through Motor Vehicle Aggregator Guidelines

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In what may cheer drivers who have been hit hard by the coronavirus pandemic, the government has mandated they get at least 80 percent of the income earned from a ride, with the remaining going into the kitty of the aggregator.

Cab aggregators do not charge drivers a fixed commission as even that fluctuates depending on whether a driver is new or old on the platform. It also varies basis the number of rides the driver concludes in a day.

Over the last few years, the drivers have been crying foul over rising commission and decreasing incomes. Multiple driver unions have time and again been protesting about how the aggregators offered them high incentives during the time of logging on to their platform. However over a period of time that gets reduced as the operators stop these schemes abruptly.

Back in 2015, commissions that aggregators charged from drivers were nominal. Drivers used to take home anywhere between Rs 90,000 to Rs 1.5 lakh a month. Lured by high income potential, thousands of drivers joined the cab-hailing apps during 2015-2016.

However, the ones who joined have been crying foul, given a sharp decline in income owing to rise in commissions. Most of them have been struggling to recover the cost of their vehicles which they have purchased on loans. Their monthly earnings barely cover the EMI and cost of running the vehicle.

As compared to 2015, the earnings of drivers have declined by 60-70 per cent till the pre-COVID era. The COVID-19 pandemic has only accelerated their financial woes.

Further the guidelines also talk about compulsory insurance which will be given to all the drivers by the aggregators. While Uber and Ola currently offer insurances, these come with a lot of caps.

Uber offers its drivers a coverage of Rs 5 lakh in case of death or permanent disablement and Rs 2 lakh in case of hospitalisation in partnership with insurance firm ICICI Lombard. However the cover is not applicable if the driver is off-duty or has switched off the Uber app.

Similarly, Ola also launched its 'in-trip' insurance in 2017, in partnership with Bajaj Allianz to offer drivers a cover of up to Rs 5 lakh.

The government has now ensured that much like the employees of a company, the drivers will also be entitled to a regular health insurance of Rs 5 lakh and a term insurance of Rs 10 lakh, with the amount going up 5 percent every year.

But all of this will come at a cost to the drivers as well. In order to hoard incentives, the drivers race to increase the number of rides in a day. This often leads to them working for 14-16 hours. The government has now asked the cab aggregators to ensure that no driver will log into the system without taking a 10-hour break after clocking in 12 hours of service.

They also need to ensure that no one will work for more than 12 hours in a day. They have been asked to come up with a mechanism on their apps to monitor the hours put in by drivers to ensure their safety and that of the passengers.

“LocalCircles had received thousands of complaints last year about consumers facing 5X-10X surge pricing and drivers cancelling rides on consumers all the time. It is heartening to see that most of our recommendations have been accepted," said Sachin Taparia, founder and chairman of LocalCircles.

"Compliances to these rules may mean some short-term pain for a medium- to long-term gain for aggregators, an equivalent to when ecommerce platforms were made liable to disclose MRP and expiry date for products on their websites/apps which led to increased consumer trust in e-commerce platforms," he added.

Uber and Ola did not comment.
Priyanka Sahay
first published: Nov 27, 2020 02:45 pm
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