Karnataka govternment’s order on cabs
Context:
- The Karnataka government recently announced a uniform minimum fares for both app-based cabs and city taxis depending upon vehicle cost and disallowing surge pricing in an order issued on February 3.
- The move of the government is expected to improve the earnings of cab drivers.
- But it is also debated as the move may also disrupt India’s saturated ride-hailing market, in which companies have found the space to innovate and differentiate their business models to gain a competitive edge.
- The order issued by Karnataka’s government will require ride-hailing companies to rework their business models in the state and search for new ways to remain competitive.
What does the transport department’s order say?
- The transport department’s order, which came into effect immediately specifies minimum fares based on three slabs of vehicle costs.
- The first slab includes all vehicles costing up to Rs 10 lakh, for which the minimum fare is fixed at Rs 100 for up to 4 kilometres and then Rs 24 for each subsequent kilometre.
- The second slab includes all vehicles which cost between Rs 10 lakh and Rs 15 lakh, for which the minimum fare up to 4 kilometres is Rs 115 and an additional Rs 28 for each subsequent kilometre.
- The third slab includes all vehicles costing over Rs 15 lakh, for which the initial 4 kilometres will cost a minimum of Rs 130 and an additional cost of Rs 32 for each subsequent kilometre.
- It is important to note that the order makes no distinction between different types of vehicles, be it sedans or SUVs, nor does it consider the availability of features like air-conditioning.
- Also the order allows for the charging of fares only on the basis of distance travelled and not on the basis of time taken.
- Charging fares only on the basis of distance travelled implies that surge pricing, which involves the hiking of fares during peak hours is also not allowed as per the order.
- However the order does allow for a 10% surcharge on trips between mid night to 6 am.
How will the order impact Uber, Ola, and BluSmart?
- Uber and Ola together command a majority of ride-hailing market in India.
- Both of the companies offer an upfront fare which consists of the base rate, rates for estimated time and distance of the route, and the current demand for rides in the area.
- The third component is determined by an algorithm which automatically increases the cost of the trip based on the demand for rides in the user’s locality.
- Once the user selects the vehicle and the corresponding upfront fare the app connects the user to a nearby driver.
- The order will fundamentally alter Uber’s and Ola’s price settlement mechanism as the order disallows surge pricing and price determination on the basis of time taken.
- Fares for Uber and Ola are also dependent upon vehicle type and not vehicle cost as notified by the order.
- Opposite to Uber and Ola, Delhi-NCR based BluSmart’s ride fares are not sensitive to fluctuations in demand.
- BluSmart, which currently operates only in Delhi-NCR and Bangalore has fixed prices depending on which distance slab the ride falls in.
- For its Delhi market alone BluSmart also applies an additional distinction between relaxed hours and rush hours.
- For example booking a BluSmart cab in Delhi for a 6 kilometre ride during rush hours costs Rs 199 as opposed to Rs 149 during relaxed hours.
