Are Acche Din Over for Ola and Uber?
The Ministry of Road Transport and Highways recently released guidelines for motor vehicle aggregators. What does this mean for Ola and Uber?
For the last few years, Ola and Uber have enjoyed a fun ride (there will be more such puns in this story).
These companies – called motor vehicle aggregators (‘MVAs’) – remained largely unregulated which gave them a free reign to grow. But they misused this freedom, whether by underpaying drivers, providing insufficient hygiene support during the pandemic, or charging exploitative surge prices.
After years of hearing about these complaints, the Ministry of Road Transport and Highways finally stepped in. It released the Motor Vehicle Aggregator Guidelines, 2020 (‘Guidelines’).
These Guidelines will fundamentally change how MVAs do business. Today’s story explains what the impact will be.
Regulatory Scheme
Before driving into the Guidelines, let’s understand the regulatory framework for motor vehicles in India.
The primary legislation is called the Motor Vehicles Act, 1988. This statute lays down requirements regarding obtaining a driving license, registration of vehicles, and speed limits. Since this law was passed in 1988, it was ill-equipped to deal with apps like Ola and Uber.
Last year, the government steered in a new direction by amending the Motor Vehicles Act. The amendment defined an ‘aggregator’ to mean digital intermediaries that connect drivers with passengers, i.e. apps like Ola and Uber. It also required these aggregators to obtain a license from the state government.
While issuing such a license, the state governments need to follow guidelines made by the Central government. That’s how we arrive at these 2020 Guidelines.
Bumpy Road Ahead?
The Guidelines are the Centre’s way of saying “enough is enough.” They introduce several requirements that directly affect how players like Ola and Uber do business.
Let’s start with the fact that aggregators need to obtain a license. To get such a license, they must comply with obligations like –
(a) ensuring that drivers have a health insurance of at least ₹5 lakh and a term insurance of not less than ₹10 lakh which must be increased by 5 per cent each year;
(b) preventing drivers from logging in more than 12 hours a day, with a mandatory break of 10 hours in between;
(c) maintaining a 24x7 control room that is in uninterrupted contact with all vehicles; and,
(d) storing data generated on the apps on servers in India.
What’s more? The Guidelines put a break on these companies’ pricing strategies. Aggregators can only retain 20 per cent of the fare on each ride and the remaining 80 per cent must go to the driver. The Guidelines also cap surge pricing at 1.5x the base fare.
If aggregators don’t comply, they can face penalties ranging from a fine to cancellation of the license.
Second Order Effects
Cab aggregators are still reeling from the impact of the lockdown. This move comes at a time when they’ve barely been able to restart their business.
The Guidelines can have also spill-over effects on drivers and users. In case of the former, a cap on the working hours and surge pricing will affect how much drivers earn. For users, it may lead to longer waiting times and a reduction in discounts.
There’s no doubt that the market needed to be regulated. But from the perspective of Ola, Uber, and co., the Guidelines have surely put a spanner in the wheel.
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