Odd-even scheme: AAP has to first clarify on surge prices for buses

Those who pay exorbitant surge prices for buses for 13 days should not object to occasional surge pricing by taxi aggregators.

Written by Surjit S Bhalla | Updated: April 27, 2016 11:27 am
odd-even, odd-even II, odd-even delhi, app-based taxis, taxi surge pricing, taxi surge pricing delhi, delhi surge pricing, cabs surge pricing, arvind kejriwal, surge pricing odd-even, odd even phase 2, phase 2 odd even, delhi high court surge pricing, delhi news, india news, indian express The ratio of car rental to price is 0.57; the ratio of AAP bus rental to price is 3.05. The AAP has paid 5.4 times more than what the market would warrant. Why?

Like old Indian socialism, Arvind Kejriwal’s odd-even policy is meant to achieve several objectives by one single instrument. By implementing the odd-even policy, Kejriwal hopes to reduce congestion by keeping 50 per cent of vehicles off the road, reduce pollution by an equivalent 50 per cent, achieve social justice by exempting women from the hardships of odd-even, appeal to the aam aadmi by exempting two-wheelers, and even more, by banning surge pricing and, thus, protecting the inefficient, expensive (but traditional!) kaali-peeli taxis.

The first pre-lesson of policymaking is that it’s impossible for one instrument to achieve several objectives. (Jan Tinbergen got a Nobel prize in economics for pointing this out.) And the results point to the odd-even policy being a monumental failure, at least in reducing congestion or pollution. According to traffic experts, pollution is down minimally (if at all) and a decline in car numbers is more than compensated by the extra buses and two-wheelers. So, if you have not seen any improvement this time round, you are not alone.

As has been pointed out, a necessary part of the success of the odd-even scheme is that there be enough public transport to compensate for the theoretical 50 per cent of cars off the roads. There are three aspects to the public transport substitution — taxis and three-wheelers, buses, and the Metro. The Metro is a long-term solution and doesn’t apply with that great force to the short term. So, one is pleased that Kejriwal plans to augment the Metro-force, but that’s not an achievement (or failure, in case the Metro project goes the odd-even way) by which the AAP experiment should be judged. But that’s many years away, and certainly much more than the proverbial one week in politics.

For the immediate term, it’s worth examining what the AAP has done vis-a-vis bus transport. What should have been the No 1 priority has sadly not been implemented (although greatly talked about) by the AAP. In the past three years, low-floor buses have remained stagnant at 3,781, while standard-floor buses have risen to 680 — however, it’s unclear how much of this rise can be attributed to the AAP.

If you listen to AAP commentators, they don’t lack in noble intentions (or even nobility, at least in thought). The Delhi budget presented on March 28 contains the following plan (paragraph 58): “DTC has a fleet of 4,461 buses which includes 3,781 low-floor buses and 680 standard-floor buses. The government will procure 1,000 new… non-AC buses during 2016-17. At present, 1,490 cluster buses are operational in Delhi and it is proposed to add 1,000 new buses under cluster scheme in 2016-17. Our government would also introduce 1,000 buses in the premium category through a purely market-driven model to encourage the financially well-off to use public transport. To accommodate these new buses, bus depots will be developed at Rewla Khanpur, Dichaun Kalan, Kharkari Nahar, Bawana Sector-1 and Dwarka Sector-22. I propose a plan outlay of Rs 325 crore for purchase of buses”.

Keeping this budget in mind, the government did the following in preparation for the odd-even scheme implemented between January 1 and 15: “The government initially announced it would augment DTC’s fleet of 4,461 buses by enlisting 6,000 private buses during the implementation of the odd-even plan. Later, the number of private buses was pruned to 3,000. The response from private bus operators, however, was lukewarm; about 1,200 buses registered with the DTC for the 15-day run. The government also asked schools to give their buses. Some did, many did not.” (‘Hardlook: How DTC kept the wheels turning’, The Indian Express, January 18, 2016)

How much did the AAP government pay for the rental of these 1,200 buses? According to a report in the Hindustan Times, January 21, quoting a senior Delhi government official, “The Delhi Transport Corporation hired 1,200 extra buses. The agreement was to pay Rs 42 per km and the corporation was supposed to pay them for at least 225 km a day. So, for 13 days and 1,200 buses, at least Rs 14 crore will be paid to the private operators”.

While the Delhi budget is on the Delhi government website, and the odd-even is the most talked about subject today, even more than sedition, Kanhaiya and Uttarakhand put together, it’s strange that the AAP hasn’t chosen to make the payments to temporary bus operators public. So, assuming the newspaper reports and the Delhi budget are correct, these are the facts we know: The AAP government plans to spend Rs 325 crore for 3,000 buses, ranging in quality from non-AC to premium (plus bus depots). That comes to an average price of Rs 10.8 lakh per new bus. The average rental paid by the Delhi government per bus was Rs 1.16 lakh for 13 days which turns out to be an average annual rental rate of Rs 33 lakh, or three times the cost of a new bus for one year, that is, the ratio of one-year rental to cost is 3.05. Did the AAP pay a normal rental price for the buses, or did it indulge in paying considerably more than surge prices to the (private) bus operators?

Maybe the rental market in India is very inefficient. Let us find out the average rent that you and I (in our private capacity, and not trying to do good for the city or country) pay for a car in Delhi. For one eight hour day, a sedan rents for Rs 1,200, or Rs 36,000 for a month, or Rs 4.38 lakh a year. The cost of a sedan is approximately Rs 7.5 lakh. The ratio of car rental to price is 0.57; the ratio of AAP bus rental to price is 3.05. In other words, for the same “good”, the AAP government has paid (3.05/ 0.57) 5.4 times more than what the “market” would warrant.

Now, are the car rental and bus rental markets comparable? Of course, the entire theory of free market is based on the fact that profit margins equalise, over a period of time. Otherwise, everyone would flock towards the higher margin bus rental market. An objection to this could be that the bus rental market doesn’t have much demand, which seems pretty unlikely for India. Assuming the markets are comparable, why did the AAP pay 5.4 times more than the market rate? Perhaps there’s an element of surge pricing involved here.

After the odd-even announcement, bus operators would know there was excess demand and, therefore, would automatically include a surge element in their pricing. However, no one else (besides the AAP) knew that an odd-even policy would be introduced. Plus, the Delhi government was a monopoly buyer in this situation. If the AAP wanted to, it could have extracted a discount for the bulk order. We don’t know the details of the negotiations, but the public has a right to know. What we do know is that AAP paid 5.4 times the “market” value.

I could be wrong. In reality, perhaps the AAP paid a lot less to the bus operators than the quotes from a senior Delhi government official suggest. When I mentioned this calculation on NDTV’s Left, Right & Centre programme, AAP spokesperson Raghav Chadha confidently stated that “I had cooked up these numbers”. I will let that accusation pass since it seems to be a habit of politicians who either don’t know the facts, or find them inconvenient. But the AAP has to first set all speculation to rest about the surge pricing it paid, before banning “surge” pricing by Uber and Ola.

The nation awaits this clarification.

(This article first appeared in the print edition under the headline ‘No Proof Required: AAP ki surge pricing’)

The writer is contributing editor, ‘The Indian Express’, and Senior India Analyst, The Observatory Group, a New York-based macro policy advisory group.

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