Cab-Drivers Strike In Delhi: Are The ‘Good Times’ Coming To An End?

“Sir, it was all a farce. A mirage of beautiful promises. Today, I am in a bigger mess than I was a year ago,” is what Asif confided in me as we snaked our way through the Mumbai traffic. As it’s a long journey from Thane to Central Mumbai in an Ola Micro, we invariably started talking about life in general and taxi business in particular. After deliberating on other things, when the discussion came down to his earnings, Asif seems much perturbed. After a long morose pause, he spoke at length how his income had plummeted in the past year and more, coming from a high of almost one lakh per month to less than Rs. 20,000. “When I started driving for Ola, the incentives were much larger than the actual earnings. Today, the total money that I manage to make is barely sufficient to cover the cost of the EMI of the car and fuel cost, forget about making a livelihood. There’s not much hope left sir,” he said in a melancholic tone.

The conversation I had with Asif was around a month or so back. Somehow, I was reminded of it as I read reports about cab drivers going on a strike in Delhi. The strike called by over 5000 drivers on the cab-aggregator platforms like Ola and Uber, has been going on for the past few days. The news about the strike might have been lost in the sea of coverage of the various elections and political defections; the enormity of what’s at stake cannot be ignored or undermined. And while, it is easy to dismiss the current crisis as a local one (in Delhi for now); the malaise runs pretty deeper and possibly could metamorphose into something much bigger in the days to come. In fact, the strike in Delhi is not an isolated event at all; on January 23th Ola & Uber drivers in Bengaluru had called a strike demanding higher travel rates; entire operations of Uber and Ola came to a standstill for 6 days between 1-6 Jan in Hyderabad; similar instances happened in other cities like Mumbai, Chandigarh, Mangalore and other cities.

The ironical part is that the drivers might be raising slogans and demanding justice now, the current crisis was inevitable. The seeds for the same were sown in 2014, and further exacerbated in August 2016, when Uber sold its China business to Didi Chuxing after burning some $2 billion in two years. Armed with hot cash, Uber decided to quickly gobble the Indian taxi-industry pie and set off a chain of events that have culminated in the strike by drivers in Delhi. The rumblings are ominous.

Changing colours of Taxi

The economic liberalisation in 1991 was an epoch moment in India. Much of our assessment of the economic past is often measured from a pre and post liberalisation scenario. It was only in 90s that our economy expanded many-fold. Quite similarly in the taxi industry in India, there are two epoch moments that have defined the overall sector. First, when Meru Cabs launched its services in Mumbai in 2007. The olive-green operator heralded a new genre of radio taxi service, which was a much welcome change from the kaali-peelis. Then in 2011, came the app-players Ola and TaxiForSure. With finally Uber arriving on the scene in 2013.

In just a few years, the taxi cab industry in India erupted into a multi-billion dollar mammoth. So, in 2014, India was nowhere on the global map for taxi aggregators, and by 2016, India was the third-biggest market after China and North America. In fact, according to SoftBank Group’s assessment, the taxi industry could be worth as much as $7 billion by 2020. That’s almost equal to 47,000 crores! And we are just talking about the organised cab sector.

Little wonder both Ola and Uber left no stone unturned in their pursuit of market share. Hundreds and thousands of cabs were added on the network in a matter of months, new cities have been covered, financing and leasing options were in place, rules broken and subsequently managed, and in the bargain, competition has been unscrupulously impaired.

The fantastic growth of the taxi industry was fuelled by venture capitalist money. Funds that were sourced from investors and used to undersell the service in hopes to expand the market through discounting and wiping out competition through predatory pricing. Little wonder in the wake of the massive blitz of VC money, almost all players except for Meru have all but vanished from the marketplace. Even Meru itself is no more the force that it used to be.
This entire shift in the taxi industry has been presented as a by-product of innovation and economics. Today, air-conditioned cabs are available at a click for as low as Rs. 6 per km, whereas the actual running cost would not be anything lower than Rs.15 per km (accounting for all the costs from fuel to driver’s margin). The consumers, that had so far been at the mercy of the kaali-peelis and the auto-rickshaws, joyously lapped up the new cab companies as a liberation at the hands of the taxi aggregators. Imagine, commuting becoming convenient and cheap, both at the same time. Sounds too good to be true, isn’t it? Don’t worry, it won’t last too long.

Peddling fantasies

When Ola & Uber started the price war, the first one to take the hit were the drivers from the old lot — the kaali-peelis and the autorickshaws. As people moved on to the cheaper convenience offered by the taxi aggregators, the drivers from old lot were run out of business. Since a vast majority of these drivers had purchased cars or procured ‘permits’ at exorbitant rates, they could not shift over to the taxi aggregator platforms and thus were at an immense loss. Meanwhile, in there hurry to shore up numbers, both Ola and Uber rolled out a massive allurement exercise. Incredulous incentives would be rolled to build scale in a jiffy. So, you had schemes like if you completed 6 rides in the day an added incentive of Rs. 1800 would be added to the pay-outs, and in case you ferried 9 customers the incentive would be as high as Rs. 4000. Imagine, Rs. 4000 a day could be earned by just carrying 9 customers to their locations. No wonder, the drivers from these aggregators seemed more delighted to take you on a shorter-ride unlike their primitive cousins who only wanted longer rides. It also started a practice of large scale faking of trips by drivers. Aggregators ignored it for good period as it also helped them to show higher growth to their investors.

But this dream run could not last forever, could it? The Olas and Ubers were banking on surge-pricing to compensate for the losses incurred by discounted fares. But as various governments and courts clamped on the ad hoc surge pricing, the projections of cab aggregators very completely undone. With losses mounting every day, the twin cab companies were apparently bleeding as much as $100 million (around Rs. 600 crore) every month, according to estimates. The excessive incentives designed to capture customers and drivers had taken its toll on the bottom line.

As the numbers of drivers in the system ballooned, both Ola and Uber decided to poop the party of its drivers. Over a period of a year, the incentive scheme has reduced by 20-40% and qualifying criteria have been made more stringent. Different sorts of penalties were introduced, commission fee hiked to 25%. In addition, with the manifold increase in supply versus demand, the per capita number of drives came down drastically. Result, the pay-outs of the drivers decreased drastically. As most of the drivers in hopes of ‘acche din’ had brought cars on EMIs and upgraded their lifestyle to match their newfound earnings, this fall in revenue was just too much too bear. Thus, you have the likes of Asif in Mumbai grumbling incessantly or the thousands of drivers in Delhi, Bengaluru or Hyderabad going on a strike.

Surprisingly, even now, with all the brouhaha on the miss-selling and misrepresentation, both Uber and Ola are still adding on drivers to their network. Through, their leasing services, the companies are now turning free-wheeling drivers into bonded labourer, with zilch incentives.

Driver done, commute next?

With the driver-side rationalisation in place, analysts are now speculating on how the cab aggregators will now raise the stakes. Over the past few months, through their PR machinery, both Ola and Uber have not only stalled regulations that impaired their operations, but also ensured that a new set of laws were brought into play that more or less favoured them. With competition almost wiped out, the two players have now created a duopoly. With the new Motor Vehicles Act in place, that has no cap on surge pricing, these operators would now be looking at raising fares to cut the losses. Already, Bhavish Agrawal, CEO of Ola Cabs, has asked for a minimum pricing to be enforced and is already talking about the detrimental effects of discounting.

The big question is now whether these cab aggregators will increase the price or not, but when and by how much. This is how things more or less played out in China, namely, the creation of a duopoly before Uber decided to cut its losses and move out culminating in an absolute monopoly with 93.8% market share.

Pretty soon, all those fanciful per km rates could be a thing of the past. And customers would have to grin and bear the new ‘surging’ as a norm as there won’t be any option to choose from. Possibly then, commuters might reminisce about the olden days of how the old rickshaw-wallahs were charlatans and the taxi-wallahs were scoundrels, but at least they were a known lot. Unlike, the cold and algorithmic app, that fleeces you and you can’t even argue back.

In the days to come, it just might be the case that both the driver and the commuter would grumble and mop at the way things are, talking about the good-old times. The only one smiling would be all those VCs with their billions stashed away in the banks. Let’s hope we don’t get there.

Shashwat DC

Author: admin

1 Comment

1 Comment

  1. ravi

    March 4, 2017 at 1:47 pm

    Nice article

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