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Karnataka vs. Cab-Aggregators (Part II)

By Anupam Manur (@anupammanur)

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In order to obtain a licence, cab-aggregators have to replace their present efficient technology with an outdated one. The requirements to obtain the licence are archaic and simply untenable. 

In yet another blow to cab aggregator companies in Karnataka, the State Transport Department issued a statement asking cab aggregator companies which have not obtained the necessary licences to stop operations immediately. “Web-based aggregators had to obtain licences to operate cabs and taxis. But many aggregator companies have not obtained licences, but are operating such cabs. This is a gross violation under sec-93 r/w 193 of the Motor Vehicles Act. Hence, companies which have not obtained licences from the concerned authority should stop operations with immediate effect otherwise strict action will be taken against such operators,” the statement said.

It does feel a bit retrograde to ask companies to stop functioning for not having obtained the appropriate licence. It does remind one of the pre-1991 days. However, the immediate counterbalancing reaction would be to wonder why would the cab companies refuse to obtain a licence. What exactly is preventing them from getting a licence, which can keep them in business in their largest market – Bangalore. So, I wanted to know what does it entail to obtain a licence to continue as a cab aggregator.

This particular section (sec-93 r/w 193) of the Motor Vehicles Act specifies that “No person shall engage himself as an agent or a canvasser, in the sale of tickets for travel by public service vehicles or in otherwise soliciting customers for such vehicles, without a licence from the proper authorities”. This bit seems more relevant for KSRTC ticketing agents and not on-demand cab aggregators operating over a mobile app.

For further clarity, one needs to look at the The Karnataka on-demand Transportation Technology Aggregators Rules, 20 I 6, which was released on 2nd April 2016. It starts off by quoting the original section 93 that a licence is required to operate as a cab aggregator and then goes on to specify the requirements for obtaining the licence.

The requirements are specified for the aggregator company, the driver, and the vehicle. The company has to pay a licensing fee of Rs.50,000; keep a security deposit of Rs.2,50,000; have a minimum of 100 cabs in their fleet, has facilities for monitoring the vehicles via GPS, etc. The driver should have a driver’s licence, minimum driving experience of two years, be a resident of Karnataka for a minimum period of two years and have a working knowledge of Kannada among other things.

All of these requirements seems fairly reasonable and should not act as an impediment for Ola or Uber to obtain a licence. It also seems that the regulators have understood how cab aggregators work, until of course, they get to the specification for the vehicle. When describing the requirements of the vehicles, the Act goes back to the classic 1970s Licensing Raj days. All cabs should be fitted with an yellow coloured display board with words “Taxi” visible both from the front and the rear. The board shall be capable of being illuminated during the night hours. The driver’s licence and photo should be displayed clearly in the vehicle. As of now, the app takes care of that.

The part of the Act that betrays the fact that the regulators temporarily time travelled to the 1970s is the demand for every vehicle to have a meter which displays the fare along with a printer that can provide a printed copy of the final amount to be paid along with the breakdown of the fare. While specifying this, they truly embraced red-tapism, in all its glory, and specified the font size for the bill to be printed in, print width, print speed, resolution, among other things. They have also given extremely detailed specifications of the GPS/GPRS capable vehicle tracking unit (including temperature range and humidity of the device).

Some of the specifications for vehicles operating under cab-aggregators.

Some of the specifications for vehicles operating under cab-aggregators.

Asking an app-based cab aggregator company to install a bill printing device in the car, a large display monitor that shows the route, fare, and other details, to have a taxi sign on top, etc seems to be retrospective in nature, since all of this is done more efficiently by the respective apps. By demanding Uber and Ola to obtain licences by adhering to these specifications is forcing them to replace their more efficient technology with an outdated one.  By doing so, the regulators are only betraying their ignorance of how a cab-aggregator functions. I would strongly urge them to download the Ola app today, take a ride, understand how it works and then come up with regulations that wouldn’t throttle the businesses.

Anupam Manur is a Policy Analyst at the Takshashila Institution.

(Part I was regarding limiting Surge Pricing and my article on that can be found here).

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Why the new Geospatial Information Bill, 2016 is a death knell for start-ups?

The draft Geospatial Information Regulation (GIR) Bill 2016 recently introduced by the government is complete bad news for Start-up ecosystem and will lead to a license-quota-permit raj 

The government of India, ministry of home affairs recently released a draft bill on geospatial information regulation and invited comments from the public. The reason given by the government is that Pathankot attack in January was due to the precise location being known by the terrorists and that the bill addresses the question of national security. The bill recommends a fine up to Rs. 100 crore and a jail term up to seven years if the map of India is depicted wrongly.

Governments have every right to frame laws to safeguard and enhance national security. The bill has been on the agenda of the Indian government since 2012. The main concern of the government seemed to be Internet giants like Facebook, Google, and Microsoft etc. According to the draft bill, it will be mandatory to take permission from a government authority before acquiring, publishing, disseminating, or distributing any geospatial information about India. It also specifically states that the government will set up a Security Vetting Authority (SVA) in a time bound manner. Where the bill gets it wrong is creating a negative atmosphere and unnecessary roadblocks for start ups.

Amitabh Bagchi, a professor at IIT Delhi, says that companies like Google and Microsoft are at the lowest end of an application stack that may consist of several layers.  Multi billion dollar companies like these get the information available through the Application Programming Interfaces (APIs). In December 2014, the Survey of India, the central government’s nodal agency for maps reported that map of India is wrongly depicted by Google in its websites like google.co.in, ditu.google.co.ch (China), google.pk (Pakistan) and google.org (general).

The ones who are likely suffer the most are Start-ups that heavily depend on geolocation services. Companies like Zomato, Swiggy, zop now, gropeher etc have their successes pinned on to the location. In addition, Bangalore based start ups like MapUnity and Latlong that create apps for businesses are genuinely afraid that it will kill them. Big companies like Ola and Uber do not get affected that much. They are big enough to tide over crises. It is the small companies that have every reason to be apprehensive. The timeline for government approval could be up to three months, a luxury which cannot just be afforded by the start ups. Therefore they have come up with a website titled Savethemap.in that informs the user about the bill in the frequently asked questions (FAQ) section. A good public policy is one in which all stakeholders are consulted rigorously and their concerns addressed.

Guru Aiyar is Research Scholar with Takshashila Institution and tweets @guruaiyar

Featured Image: Geomap by Caulier Gilles licensed from Creativecommons.org

 

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A Ban on Surge Pricing will Create Shortages

By Anupam Manur (@anupammanur)

Instead of a price ceiling on cab prices, the government should look at all the ways in which it can increase the travel options within the city.

Karnataka’s Transport Minister Ramalinga Reddy recently unveiled a new policy to regulate cab aggregator services such as Uber and Ola. While Karnataka previously had a policy to regulate regular taxis as ride-hailing services under Radio Taxi Scheme, 1988, Uber and Ola were not covered under the law, as they were aggregator services and not companies that own and operate vehicles for hire. However, as the app-based on-demand cab aggregator companies became increasingly popular, the government sought to bring them under the regulatory ambit.

The policy has introduced a few concessions for the cab aggregators, in a move to increase the supply of cabs. They have dropped the restrictions on the age of the vehicles, reduced the number of years that a driver had to be a resident in Karnataka from five to two, and has allowed drivers to switch between the ride hailing apps, as per their choice. They have also halved the license fee and security deposit. All of these moves will benefit the companies and the customers alike.

However, the biggest policy that will have a detrimental effect on the state of urban transport in Bangalore is the decision to disallow surge pricing for these companies. Both Uber and Ola use an algorithm to determine the prices based on real time demand and supply. If the demand for cabs were considerably higher than the supply, then the app would tell the customer that prices have surged. The surge pricing not only reduced demand, but is also a tool to increase the supply. A higher price will automatically incentivise more drivers to go to the area with surge pricing. However, the surge prices can, at times, be quite ridiculous, which is what caught the authorities’ attention. On New Year’s Eve, for example, Uber had a surge pricing of 10X, that is, ten times the normal amount.

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Effectively, the government has put a price ceiling on what these companies can charge the customer. It has given a band with a fixed upper limit, within which the price charged to the customer has to fall. While, this might seem like something to cheer about for the customer at the first glance, a closer inspection will reveal that it will actually end up hurting the customer as well as the companies.

Price ceilings simply do not work, as economic history has repeatedly taught us. A price ceiling will simply create a shortage in the supply of the good in question and create distortions in the market, which will hurt the very customer that such laws are intended to protect. In this case, a ban on surge pricing will lead to a reduction in the number of taxis available in the market, thereby creating welfare loss to the customers who demand the taxis.

The supply of any commodity depends on the price. At each price point, a supplier (driver in this case) will decide whether it is profitable to sell at that price point. Auto rickshaws normally charge 1.5X from 9PM – 6AM, in a bid to be compensated for working late hours and at times that other would not be willing to. Imagine if a similar price cap had been put in place for autos, there wouldn’t be any autos available for hire after 9PM.

Similarly, during peak hours and other times of high demand, in the absence of surge pricing, an Uber driver would not consider it worthwhile to switch on the app or accept ride requests and thus, leading to shortages.

Another major impact of this ruling would be that Bangalore would lose out on the new investment that these companies had pledged. Uber, which has now partnered with 30,000 cabs in the city had planned to expand to about 1,00,000 cabs in the next few years. Uber and Ola combined had pledged to invest around Rs. 15,000 crores in the next few years in Karnataka. With regressive laws such as this, the state could easily lose this investment to neighbouring states. The other worry is that other Indian states could follow this bad example. Maharastra was considering a similar move and it could get buoyed by the Karnataka move.

Finally, the government must rethink whether this is the best method to achieve its objectives. The intention behind this move is to increase the supply of public transport at affordable rates for the consumers. Instead of creating distortions in the market by implementing a price cap, the government should look at other ways to make the market more competitive and remove entry barriers. The government could consider allowing flag down taxis on the streets, like they have in all other major metros in India, which will surely increase the supply of taxis. It could also allow shared autos to ply on Bangalore roads for fixed routes, which will ease the demand for taxis. Another related measure is to allow private busses of all sizes on Bangalore roads, which is currently disallowed. In short, the government should look at all ways to improve public transport in Bangalore and ways to increase the number of options available for customers to travel in the city. This will surely reduce the excess demand for Uber and Ola, which will automatically make surge pricing redundant.

Anupam Manur is a Policy Analyst at the Takshashila Institution.

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Making information handy for the smart citizens

Indian regulation needs to accommodate information aggregators to help create smart citizens. 

Recently cab aggregator ZipGo suspended its operations in Bangalore after facing trouble with the  the Karnataka State Transport Department. One of the major reason for the tension between the start-up and the state is the the Karnataka Motor Vehicle Rules of 1989. As per the Rules, there is no provision for ZipGo to operate services that directly compete with the state-run city bus service under. This is just one of the many examples where the information aggregating services in India have faced trouble while dealing with Indian regulation.

Information aggregators are entities that collect information from a wide range of web sources and other sources, with or without prior arrangements, and add value by providing post-aggregation services. Common example being Uber, a cab aggregation service that helps the demand for cab services meet the supply. By reducing the information symmetry between the customer and cab driver, Uber reduces the search time spent by both the parties. The ease in looking for the customers helps in increasing the number of rides the cab drivers can provide in a day.

Uber is just one of the examples of the varied aggregating services provided across sectors. For instance, Buildkar and Swiggy provide the same service for building construction and food deliveries respectively.  As we look forward to using Information and Communication Technology to make cities smarter, it is vital that enough platforms are provided for the citizens to be able to utilise the resources around them in the best possible form. One of the ways to utilise the resources better can be by reducing the transaction cost faced by the citizens.

Transaction cost refers to the cost other than the money price incurred during an economic exchange. For instance, standing in a queue to get movie tickets is a transaction cost. However, this cost is reduced by online ticket bookings. The time saved provides more leisure time for the citizens and helps them in being more productive and efficient.

In his paper, Jiangxia Hu has listed six benefits of an aggregator: increased diversity of information, broader service availability, reduced searching cost, comparison between alternative choices, better customised to user wants and needs, and reduced transaction time. For instance, Uber the cab aggregator app does not only provide the information about availability of the cabs but also about the driver once the cab is booked. It also provides a wide range of option to choose between the type of vehicle the customer wants to choose. These features of a aggregator makes them more efficient and better equipped to serve the citizens in the technology age.

Keeping in mind the benefits and the increasing reliance on the aggregating services, it is important that Indian regulation accommodates these new platforms. Being the regulator, it is imperative that the government looks at the safety and basic quality standards of these aggregating services. That said, keeping regulations to the minimum will help these services to grow organically though network effect. Blocking or constraining the growth of such services will either harm the market or lead to the growth of illegal platforms providing similar services.

Devika Kher is a policy analyst at Takshashila Institution. Her twitter handle is @DevikaKher.

Image source: Sebastiaan ter Burg, Flickr

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Reimagining public spaces with internet

By bringing people together, internet is changing how we perceive public spaces.

Public spaces in Indian cities have been synonymous to chaos and liveliness. The common places include seasides, parks, tourist spots or markets. These public space provide cheap entertainment location for the large population in the cities looking for a quality time, or so they have till now. Recently, these spaces have become grounds for purposeful interactions.

The Digital India campaign and government’s plan to provide free wi-fi in 2,500 cities and towns across countries is an indication that internet connectivity is becoming more of a necessity than luxury in the current century. As of September 5, 2015, there were 345 million internet users in India as per a report published by the Internet And Mobile Association of India. With such a large majority of people on internet, the connectivity between people from various backgrounds and locations has made large networks. These networks usually use public spaces for physical interactions. For instance, the last food walk you went to with a complete set of strangers would not have been this hassle free without internet.

The increasingly used internet has created networks that brings strangers together in a very short notice. This feature of the internet has been played in various capacities. The tweets have been a medium for gathering large crowds during incidents like demonstrations at Cairo’s Tahrir square and the Delhi protests after 2012 Delhi gang rape case. The same medium is also acting as a catalyst for various interest groups to explore their cities and its pleasures. This has helped in shifting the crowds from the middle of the city centres to the relatively unknown ends of the city.

One of the drastic impacts of internet connectivity has been on tourism. John Jung in his article[1] has explained how Cairo’s Tahrir square gained overnight fame after the 2011 incident. It has since become a common tourist spot. A similar impact has been seen by the Irish government, which has seen a sudden rise in the tourism after the fame of Game of Thrones, an American television series.

In the recent time, internet has become an integrated part of the a city dweller’s life. Be it booking a cab on Uber or finding a restaurant on Zomato, internet has become a common platform for all. However, it is interesting to see that its also playing a role in making public spaces relevant in innovative ways. The only question now is whether the impact will substantial enough to reduce the shortage of public spaces in India?

Devika Kher is a policy analyst at Takshashila Institution. Her twitter handle is @DevikaKher.

[1] John Jung, ‘Internet in the public realm’, My Liveable City, Jan-March 2016, pp. 100

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Information Asymmetry in the Information Age

Why the impact of new technologies on markets requires governments to revise their regulatory policies

In their interesting article, Alex Tabarrok and Tyer Cowen discuss the declining relevance of asymmetric information. Information asymmetry occurs when one party has more knowledge about the transaction than the other. Usually this grants that party an undue advantage in the transaction whereas the other faces a higher risk. Taborrok and Cowen explain how various new technologies have provided enough avenues to minimise information asymmetry within the economy. They go on to conclude that this change deserves a re-examination of regulatory policy as most of the theories relating to information asymmetry are now obsolete. This post shows how this conclusion is equally relevant in the Indian context through the following scenarios.

 The Ordeals of a Family Vacation

Till recently, a typical middle income family in India would spend lots of time, effort and money planning their itinerary for their yearly holiday. Better off families would opt for travel agents who could reduce the amount of time and effort required, i.e. the transaction cost. However, the monetary cost would probably increase considerably as travel agents often exploit their customers’ poor knowledge of ticket prices and regulations to increase their profits.

This entire set-up changed dramatically with the advent of online travel booking sites. The entry of sites such as Yatra, TravelGuru, and MakeMyTrip into the market reduced the transaction costs of travel as booking a ticket was now just a click away. Furthermore, these sites supplied travellers with data they could use to make more informed choices. Such data would range from information about weather conditions and popular tourist sites to customer reviews containing user-uploaded photos. The most important contribution of these sites was to reduce the information asymmetry by removing the middle men. By providing limitless options for travel and accommodation, and the option of online payment they enabled middle income families to plan their holidays in hours.

 The Maid Market in India

Information asymmetry can increase the risk of buyers making uneconomic decisions because it often leads to a decline in the quality of products offered in the market. This decline induces buyers to reduce the amount they are willing to pay for the product and can eventually force sellers of costlier and higher quality products out of the market. This creates a market which is dominated by sellers of low quality goods. In economics this is referred to as adverse selection; a good everyday example would be house maids.

With the rise in the incomes and aspirations of middle income India, a larger number of families have started looking for house maids who comply with their living standards. Such families are increasingly looking for maids who understand English, care for hygiene, can cook continental food, handle hi-tech home appliances and are neatly dressed. However, the market for house maids suffers from an asymmetry of information. Households are usually at the losing end of the bargain as each maid has more knowledge of her expertise than the house owner. House owners would try to reduce their risk by initially paying a low wage to the maids. This would price out higher quality maids who value their service at a higher rate and would leave only low quality maids in the market.

This problem has been solved by home maid agencies. These agencies recruit domestic workers or people interested in domestic work and train them according to changing demands within the market. These agencies help domestic workers in finding better opportunities by guaranteeing a higher quality of service provision to house owners.

 The GPS Tracking of Garbage

The principal-agent problem occurs when a person (the principal) hires someone (the agent) to perform certain tasks. However, in most cases the incentives of the agent differ significantly from the principal as the costs incurred are borne only by the principal. The textbook solution is to create incentives for the agent such that it is in his or her self interest to follow the principal’s directions. One such incentive is to share the risk. For example, companies like Infosys pay their CEOs with stock options as a compensation for relatively low salaries. Another method would be to increase the cost of disobedience by monitoring the agents more. An example of the latter method is the use of GPS fitted garbage trucks in Delhi.

Garbage trucks are owned by private garbage disposal services or by municipal corporations. These trucks collect garbage from all across the city and dump it at a particular location. However, the drivers of the trucks have various incentives that interfere with this role. These include profits from reselling the garbage or alternate uses of the truck. In 2013, the Delhi government fitted GPS devices to garbage trucks to track their movements and monitor their work performance. These monitoring systems reduced the information asymmetry between the drivers of garbage trucks and owner of the garbage disposal services.

 Uber: the Escrow Agent

Asymmetry of information can often create distrust between the parties to a transaction. In such cases, escrow agents act as a trusted third party that ensure that parties maintain the standards of performance set by the contract. A simple example of this would be Uber, an international company which operates a mobile app that allows customers to book taxis.

Uber’s legal page describes the company as an intermediary for taxi drivers and people interested in availing their services. This role allows Uber to guarantee that there will be no bargains over fares for customers as well as a regular stream of income for drivers. In doing this, Uber reduces the information asymmetry by providing details about the driver ranging from his current location to his basic profile. This has helped in reducing the transaction costs of cab rides and has empowered customers trying to narrow the information gap.

 In Conclusion

The advent of new technologies has mended multiple market failures by narrowing the information gaps in various economic exchanges. In doing so they have also changed the very fabric of transactions and have thus rendered many theories from the past obsolete. As many regulatory policies were designed on the basis of those theories the onus is on political systems to revise these regulations. When they do so, they must keep in mind the ways in which new technologies have affected information asymmetries. In order to maintain pace with innovations, these policies would have to be time bound and adaptable to the needs of the time.

Tabarrok and Cowen succinctly summarise the challenges of such reforms in their piece:

 These changes cast new light on the costs of a political system that produces many new regulations but repeals very few old ones.

Devika Kher is a Research Associate at Takshashila Institution. Her twitter handle is @DevikaKher

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