India Imposes New Regs For Ride-Sharing Companies, Cuts Commissions

December 6, 20204 years ago Carolyn Fortuna 0 Comments

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Uber, Ola, and other app-based ride-sharing services in India will now be able to charge only up to 20% commission on ride fares. That means drivers will receive 80% of the ride fare, decreasing what has commonly assumed to be Uber’s 26% commission. This and other announcements come as India implements its first regulatory framework for ride-hailing.

Companies in India which identify themselves as on-demand information technology-based transportation aggregators will now experience their first legal limits, as reported by Reuters.

Ride-sharing companies must provide insurance for drivers.
Drivers aren’t permitted to exceed a 12 hour workday.
Surge prices — those busiest of times when demand exceeds drivers — must be capped at 1.5 times the base fare price.
Pooling services on private cars can now begin, but they must have a daily limit of 4 intra-city rides and 2 inter-city rides per week.
Ride-sharing companies can’t charge cancellation fees greater than 10% of the fare, or 100 rupees (about $1.35).
Women passengers will also have the option to share cars solely with other women.

India accounts for an estimated 11% of Uber’s global rides annually. SoftBank-backed, Ola has its home base in India.

An an earlier proposal attempted to cap fees at 10%.

India’s Move to Regulate Ride-Sharing Companies

India faces the same regulatory dilemmas as many jurisdictions around the world as it attempts to stay current with advances in mobile technology and shifts in the sharing economy. State and municipal governments in India have struggled to regulate Uber, Ola, and other mobile-based aggregating companies, with tensions rising over legal definitions of their legal status. Are aggregators actually traditional taxi-operating companies? Or are they intermediary information technology companies?

Tariq Ahmad, a foreign law specialist who covers South Asian countries and Canada at the Law Library of Congress, explains that aggregators like Uber contend that they do not own or lease any vehicles or employ any drivers. Rather, they see themselves as only providing a mobile platform for customers to connect with drivers and consider rules that compare their services to taxis to be “onerous, outdated, and incompatible” with their business models.

In India, the Motor Vehicles Act, 1988 continues to regulate road transport vehicles, requires specific permits for transport vehicles, and stipulates various conditions and requirements for holding such permits. The Act also grants state authorities the power to issue rules regulating taxis. Yet the Information Technology Act, 2000 delineates the legal framework for IT companies, including rules regulating e-commerce and cybercrime.

Ride-Sharing as Attempt to Answer Environmental Concerns in India

In an effort to improve the quality of air in the city of Delhi, on December 16, 2015, the Supreme Court of India ordered that all taxis (including aggregators like Uber and Ola) move from diesel to CNG fuel in the hope that “it will contribute substantially to the reduction of the pollution.”

Both major aggregators, Uber and Ola, agreed to comply with the order moved to assist their drivers with initiatives to make the switch. The ban caused taxi drivers to protest and had a disruptive impact on the livelihood of thousands of private cab operators, including those associated with aggregating companies. In pleadings to the Court for leniency, taxi drivers argued that they needed more time to make the switch, were still paying loan installments on diesel vehicles, and found the costs involved to switch to CNG significant. Ultimately, the Supreme Court allowed diesel taxis with national permits to operate in Delhi “until their permit expired but banned new registrations of such vehicles that provide pick-up and drop facilities in the Capital.”

A consequence of the Supreme Court decision was the shift to plug-in electric vehicles to assuage massive air quality problems and fuel sourcing challenges. By 2019, the Indian government began planning to mandate cab aggregation services to have minimum percentage of their fleet as electric cars. Tata Motors Finance Solutions extended a loan of just under $400,000 to Ola Fleet Technologies, the cab-leasing subsidiary of Ola, to be used for the purchase of Nio electric vehicles, with about $250 million more from SoftBank, according to regulatory documents. Ola planned to put 10,000 electric vehicles on the roads over the subsequent years — mostly 3-wheelers like e-rickshaws and electric auto rickshaws.

Earlier this year the Mint reported that Ola’s electric vehicle arm was in talks to embrace more than 20 EV original equipment manufacturers including Bosch and Samsung, as it looked to locally assemble its upcoming electric 2-wheelers in India. Ola Electric is expected to launch its electric two-wheelers in the European market, with production already live in the Netherlands.

“We want to build a world-class company that is profitable and sustainable,” Bhavish Aggarwal, co-founder and CEO of Ola, said during TechSparks 2020. “Our ambition is to play across the value chain of mobility … and we are building with a 10-plus year vision.” Ola Electric arrived in 2018 with the vision to bring one million EVs on Indian roads by 2021. Ola’s electric mobility wing further accelerated the vision by acquiring Amsterdam-based Etergo BV earlier this year.

Ola’s move to electrification makes sense. In 2019, the Indian government offered a roadmap to aggregators to increase the share of electric vehicles in their fleet progressively by 2026. By 2021 the companies need to achieve 2.5% electrification of fleet, and this percentage shall increase to 5% by 2022, 10% by 2023, and 40% by 2026.

Final Thoughts

Around the world, ride-hailing companies’ revenues have plummeted as individuals who might have otherwise hailed a ride now revert to personal vehicles with the backdrop of covid-19. Safety and social distancing have taken precedence in many cases over ease of transit. Remote working from home, too, has affected ride-sharing bottom lines.

Companies like Uber and Lyft are also coming under closer scrutiny for their business practices, with the example of California demanding that ride-sharing companies treat drivers as employees instead of contractors with fewer protections.

Uber’s ride-sharing business saw a 53% decline in revenue YoY in 2020 Q3.

Like Ola, Uber has is expanding into the EV marketplace. It has partnered with Renault and Nissan to help with its electrification efforts in Europe, signing a Memorandum of Understanding with a focus on electrifying Uber vehicles in United Kingdom, France, the Netherlands, and Portugal.