Uber, Ola show how crucial the transport sector is for business and growth

Estimates show India’s cab business may be worth $7 billion by 2020 and every player will try to get the majority share of this pie, if not all.

 |  4-minute read |   14-04-2017
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Today's "on-demand" economy has created some unique models of doing businesses wherein the largest hotel chain does not own a single room, the largest seller does not manufacture a single product and the largest taxi operator does not have its own fleet.

This may be a new norm in today’s context but the same was unthinkable till a few years ago, especially in the transportation sector, as it was considered not "elite" enough for corporates to enter this space.

Technology

All this changed in India and the rest of the world when a seemingly simple concept of putting technology a.k.a. mobile phone on vehicles. This change was most dramatic in the taxi space as the likes of Uber, Lyft, etc, disrupted the taxi space, first in the United States, and then the rest of the world.

The impacts are also evident in India. Ola, in late 2010, started concentrating on the Uber-like model of "point-to-point" drop and is valued over $5 billion today.

Uber, which is valued close to $68 billion, came to India in 2013. It was mostly a fringe player till the start of 2015 with market share less than 5 per cent that has grown tremendously since then. However, it’s not been smooth sailing.

The fast-paced growth has also witnessed bitter court battles, public spat and drivers’ strike. After Chennai, Hyderabad, Bengaluru and other cities, it was time for Delhi to witness the strike by the drivers of Ola and Uber. The drivers demanded the reinstatement of the incentive programme to its original, increase in fares and restriction on addition of new vehicles.

The 10-odd day strike in February may have ended, but it does tell us something unique about the on-demand services and Delhi’s mobility issues.

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Like the online business, the taxi space is also witnessing a virtual war on acquiring and retaining customers with both the leading aggregators, Ola and Uber, trying hard to outdo each other, with one of the technique being to offer extremely low fares.

The fares start as low as Rs 6 per km. The official rates for taxi in Delhi start at Rs 25 for first km and Rs 14 per km thereafter for non-AC taxis. The official rate for autorickshaw is also Rs 25 for first two km.

The aggregators compensate the drivers through routinely varying incentive schemes, many a times the drivers must do a certain number of trips, many a time 12 to 13 trips in a day.

The companies are using investors’ money to fund this "war" but the question is for how long? The investors’ money will run out.

Aggregators

The aggregators have grown exponentially in India and the rest of the world but they have constantly been marred with controversy around the legality of their business operations, both in India and the rest of the world.

In India, the permit taxi holders and their associations think that aggragators operate illegally, using technology to bypass the regulation and have led to calls for banning them.

Initially, many state governments in India bowed to pressure and unsuccessfully tried to ban the service, but soon they realised that these operations were performing critical functions, which were created due to historic neglect of the public transport and para transit sector by the government agencies.

The operation of these services is continuously expanding all over the country but there is still no clear regulation around them.

The ministry of road transport & highways has proposed a new taxi policy guideline to promote urban mobility, which also draws a framework for the operations of aggregators. However, it’s still a long way from the Act.

Growth

The growth of Uber and Ola has been exponential in the country and while there is no official figure with regards to their exact number, estimates suggest that over eight lakh vehicles are employed by the aggregators.

Assuming 15 per cent of these vehicles are deployed in Delhi, doing around 10 rides per vehicle per day, the aggregators do around 12 lakh trips per day in the Capital, which is much less than the 50 lakh catered by buses or 25 lakh by Delhi Metro.

The government, therefore, should not perceive them as a substitute to mass transit but as a service that can complement mass transit. While the metro expansion in going at great pace in Delhi, the expansion of bus service has been the main pain point for the city’s public transport.

Transportation is the next big business idea after the telecom revolution and that’s the reason so many companies are investing a huge amount of money in this space.

India is not far behind, as estimates show that India’s cab business may be worth $7 billion by the year 2020 and every player will try to get the majority share of this pie, if not all.

It’s time the government developed framework for managing this growth in the larger interest of the society so that it becomes a win-win scenario for all.

Also read: Uber has replaced surge pricing with something even worse

Writer

Amit Bhatt Amit Bhatt @amitbhatt4u

The writer is head of transport at WRI India - EMBARQ.

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