This is not a taxi service, don't regulate it as one
The Centre’s reported plan to change the Motor Vehicles Act (MVA) and empower state governments to regulate taxi aggregators like Uber and Ola is the kind of obsolete thinking in policy that hurts innovation. What is surprising is that the government championing the Digital India vision should display the same blinkered understanding of the very nature of aggregators—and thus miss the larger picture in the disruption brought about by them—as states like Karnataka and Maharashtra have shown in wanting to regulate the aggregators under the MVA. As technology-providers that help passengers find cabs, Uber/Ola are not agents or taxi-services that solicit rides. If anything at all, an aggregator is more like a taxi-stand or a cab-park; only, it offers the passenger the convenience of not having to physically find one to hire a cab. So, the Centre’s stand is decidedly odd; more so, given the Karnataka High Court, which was approached by Uber, is yet to decide whether aggregators can be treated as taxi services or not.
To be sure, there could be some short-term political mileage in capping fares—and effectively ending surge-pricing, or the temporary spike in charges in the face of high demand—by bringing the aggregators under the MVA. But, as Uber has argued, its surge-pricing technology actually creates greater transport capacity by inducing more cabbies to ply on a route where the demand is high. In doing that, the technology automatically ensures that enough supply is generated and charges fall. Contrast this with the self-determined, outrageously-inflated charges that autorickshaw drivers often charge in, say, Delhi or Bengaluru. Or the ‘surge-pricing’ that happens in the hospitality or aviation industry—when demand goes up, so do charges, but the overall availability of rooms/flights remains unchanged. In sharp contrast, an Ola or an Uber – and other aggregators across services, from budget lodging to handyman services – are drawing unutilised capacity into the economy and are thus contributing significantly to the country’s growth by way of adding to productivity.
Besides, Uber alone has committed to investing $1 billion for its India operations—that kind of money could mean thousands of new jobs created. Since Uber/Ola are disrupting traditional models, the gains from facilitating their growth and spread far outweigh the losses – which, in this case, boils down to taking away the government’s right to decide how many cabs will ply in a state, or how many hotel beds are to be allowed. Both the Union government and the states need to go beyond petty political motivations and consider the loss to the economy if the taxi-aggregators are forced to conform to MVA provisions. Restrictive and inapposite regulation will end up making them reluctant to invest and innovate in India. Columnist Mohamed El-Erian points out in his latest Project Syndicate column that growing restrictions on the likes of Uber and Airbnb will hit the young particularly hard, both as producers and consumers. For a country with an overwhelmingly young population—for which it desperately needs to create adequate economic opportunities—India can ill afford to clamp down on the likes of Uber.