Uber, Ola ask Karnataka govt to revise order barring dynamic pricing, warn of ‘chilling impact’ on mobility ecosystem

In a letter addressed to Ramalinga Reddy on Wednesday, Karnataka government’s Minister of Transport, IAMAI has also offered to “bring industry members together for a consultative meeting to reach an optimal solution” with regard to the order.

The transport department’s order, which was effective immediately, specified minimum fares based on three slabs of vehicle costs for both app-based cabs and city taxis. Moreover, the order only allows for the charging of fares on the basis of distance travelled and not time taken. Charging fares only on the basis of distance travelled implies that surge or dynamic pricing, which involves the hiking of fares during peak hours, is also not allowed. The order, however, does allow for a 10 per cent surcharge on trips between midnight to 6 am.

“The surprise introduction of flat fares, with no room for dynamic pricing will have a chilling impact on Karnataka’s mobility ecosystem,” the letter sent by IAMAI noted. IAMAI’s objection to the transport department’s order is based on a regulatory distinction between app-based cab operators and city taxis, which it claims is reflected in the Motor Vehicles (Amendment) Act, 2019.

“It is important to note that the Central Government took into consideration the fact that web-based transportation aggregation companies are different and more tech-enabled than normal street ride-hailing. Hence, the inclusion of Aggregators under Section 93 of the Motor Vehicles Act, 1988, which provided special licence conditions on platforms,” the letter said.

The letter argued that unlike traditional taxi drivers, app-based cab drivers have access to a host of features offered by ride-hailing companies. “These platforms provide more convenience and facilities to the end customer as well as to the drivers by providing a technology platform consisting of doorstep pick up, safety features, customer grievance redressal mechanism, GPS tracking, digital payment options, insurance & other enhanced features which should not be considered equivalent with street ride hailing,” the letter said.

Furthermore, unlike traditional offline taxi rides, rides booked through aggregators are also subject to a GST rate of 5 per cent.

The letter also defended the practice of dynamic pricing by arguing that others, including the airline sector and the Indian Railways, also partake in dynamic pricing to efficiently align supply with demand. “Under dynamic pricing models, rates are set by the platform’s algorithm, which adjusts fares based on several variables, such as time, distance, traffic conditions, and the current rider demand and driver supply. This ensures that driver supply is sufficient to meet rider demand through more strategic matching, especially during peak hours,” the letter argued.

“Dynamic pricing can enable drivers to plan their work hours more strategically, as they are able to work more during high-demand periods where they make higher hourly earnings. Off- peak hours with low demand can instead be used for drivers to rest or engage in other activities,” the letter added. It also referred to a study conducted by the Competition Commission of India, the findings of which were published in September, 2022, to argue that “restrictions on pricing can adversely affect rider availability– leaving passengers stranded in times of high demand as drivers may not be sufficiently incentivised to offer their services”.

Uber and Ola together command a majority of India’s ride-hailing market. Both 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 trip cost based on the demand for rides in a user’s locality.

The order will fundamentally alter Uber’s and Ola’s price settlement mechanism as it bars 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 mandated by the order. It is not yet clear how the two companies plan to alter their business models to adhere to the state government’s order.