[The Outline By Inc42 Plus] Driving Into A Regulatory Abyss

It is the season of strikes! 

On a typical day, people would suffer badly if 40% of the cabs stay off the road. But when Ola-Uber drivers went on strike on the first day of September this year, it reportedly caused a “minor inconvenience” as India was still opening up in phases after months of Covid-19-induced lockdowns and most people were working from home. 

As more than two lakh drivers working with ride-hailing companies, Ola and Uber, went on strike demanding a better deal, we largely ignored it, as commuters did not face too much inconvenience. Strikes like this one have been happening off and on since 2017 after an Uber driver committed suicide as he was unable to pay off his car loan due to dwindling income. 

“After staying logged in for 15-16 hours, one may earn INR 1,500. If you deduct the CNG bill of INR 500-600 and the cost of food and cigarettes, you are left with INR 700. Nothing is left out of that money after household expenses are paid. How would one pay EMIs?” asks Parkash Mishra, a driver based in Noida who used to work for Ola and Uber.

The central government woke up to the issue only last week after years of dilly-dallying and published a set of guidelines on how cab aggregators should operate. It came with several caveats, though. And the most crucial one among them is: State governments will carry out the enforcement part. (Yes, passenger transport is in the state list, but then, so is agriculture).  

But let us come back to drivers’ income. The ride-hailing platforms currently charge up to 25% in commission while the government memorandum states that cab drivers should be paid 80% of the fare. It means aggregators cannot keep more than 20% of one’s earnings. 

Other key recommendations which may impact drivers’ earnings include capping the ‘surge price’ at 1.5 times the base fare and restricting drivers from working more than 12 hours at a stretch. However, the policy document has failed to address the most pressing issues faced by drivers on these aggregation platforms but more on those later. 

What’s At The Core Of Drivers’ Grouse? 

To understand why drivers are feeling duped today, we have to go back to the beginning. If you would remember, the cab aggregators sold a dream to lure drivers onto their platforms – the dream of taking control of their fate and deciding how much they could earn and when. 

But when the cab aggregators managed to hook enough commuters, drivers no longer remained the most essential cog in the wheel but just another expense that must be minimised to ensure growth and create a sustainable business model. 

They did it in two ways. First, the aggregators’ fee was progressively hiked from 10% to 15%, then to 20% and finally to 25%. What came next was a bigger disappointment for drivers as incentives such as bonus amounts on reaching a certain number of trips per day/week came down in phases.

Syed Zakir Hussain, a driver from Hyderabad, says, “When I started in 2015, the incentives used to be different. One would get INR 2,000 for 15 trips a day or INR 1,000 for eight trips. The scheme was changed in 2016 and repackaged as a minimum business guarantee where we would be compensated if we were on duty for 12 hours but could not make INR 3,000. Then in 2017, the incentives were reworked to apply to the number of trips done during peak hours.”

When Zakir bhai (that is how he wants to be called) started with a second-hand Indica, he used to make INR 2,000-2,500 per day. This emboldened him to buy a new Etios on EMI. But as incentives went south, it became difficult to service his loan. Before Covid-19 lockdowns, there was a weekly incentive of INR 1,500 or so if a driver could complete 50 trips within a week. Now, this has been reduced to INR 800-900.

Although Zakir bhai was able to make ends meet and completed his EMIs, many have not been as lucky. A 28-year-old driver from Kolkata committed suicide in July this year as he could not repay his loan for a second-hand car as trips dwindled amid the pandemic, according to a report. 

Inc42 has also spoken to a couple of drivers in Delhi-NCR, and the situation appears to be equally grim. Both have left the ride-sharing platforms as the number of trips has dwindled drastically amid the pandemic, incentives have depleted and the toll tax of INR 100 (at the Delhi-UP border), which was earlier paid back to the drivers, have been revoked in certain cases. 

They have taken up driving jobs at corporate houses as some companies are now ferrying their employees from home to office and back. Given the safety protocols followed by many, such trips have gone up although drivers are still earning a lot less than what they used to make in their heyday. But their current jobs at least give them the certainty of what they will earn.

What The Cab Drivers Really Want 

On the face of it, Ola-Uber drivers want the commission charged by the ride-hailing companies to come down to 5-10%. But a broader set of issues has also triggered their discontent and anger. 

Take, for instance, the issue of base fares. According to Motor Vehicle Aggregators Guidelines, ride-hailing apps can charge a customer 50% lower than the base fare, and this amount would be fixed in accordance with the taxi fares applicable in a particular state. 

The bone of contention in this case: The base fare should be higher in the first place as the scope for discounts cuts into the take-home amounts of the drivers. The 1.5x cap on surge price will further hurt a driver’s chance to make a few extra bucks while the aggregators can hope to make up for the lost revenue by scaling their operations. 

“This is just a game of statistics where drivers stand to lose in every way. Today, they take home around INR 10-12 for each kilometre they cover (after deducting commissions and expenses). We want the base fare to increase so that they can earn INR 22 a kilometre. Even if they (aggregators and the government) cannot accept this proposal outright, they should at least come to the negotiation table,” says Saif Salauddin, national general secretary of the Indian Federation of App-based Transport Workers (IFAT). 

Cab drivers are also seeking a redressal mechanism which will be overseen by a nodal officer of the government. She/he should also act as an arbiter when conflicts arise between drivers and ride-hailing companies. As of now, any complaint that a driver may have must be registered with the aggregator, which means those issues will be mostly stonewalled by the company concerned. 

“There should be a government agency to deal with the problems our drivers face; it should be in line with the consumer forums. Only then we can raise our voice,” says Tanveer Pasha, president of Ola Uber Drivers’ and Owners’ Association. 

Next comes the definition of ‘driver partners’, a term that cab aggregators love to use while the government refrains from clarifying its scope. Interestingly, this issue has been debated all over the world as gig workers sign up to work for platform players, be it food delivery, home services or online tuition. The concerns are the same in most cases – it is all about low wages, faulty labour standards and the workers’ inability to access standard rights or protections.   

A solution was in sight at one point. California’s legislators had chalked up a progressive law that came into effect in January this year. It required aggregators to treat gig workers as employees, and threatened the so-called ‘sustainable’ business models introduced by the likes of Uber, Lyft or Doordash and the margins they enjoyed. This law was framed based on a U.S. Supreme Court judgement that said, “Workers who performed tasks within a company’s regular business – and were controlled by the company and did not operate their own firms – must be treated as employees,” according to a New York Times report.   

However, voters in the U.S. state of California overturned the legislation through a referendum called Proposition 22 that saw extensive lobbying by aggregators and hundreds of millions of dollars being spent on rallying the electorate against the law.

In India, too, there is no specific government policy on how to define gig workers. In a 2017 case, the Delhi High Court asked Uber and Ola if drivers are employees after which it directed drivers to leave the platforms if they were unhappy.

“They (aggregators) have said that gig workers lie outside the conventional employer-employee relationship. But they are termed as workers, and that could have only one meaning – they (gig workers) work for someone either for wages or for kind but not for profit. Does it mean gig workers on online platforms will not come under any regulation regarding hours of work, conditions of work or grievance redressal?” asks K.R. Shyam Sundar, a professor of human resource management practice at XLRI, Xavier School Of Management.  

The absence of such regulations was felt in India during the Covid-induced lockdowns when five lakh drivers lost their earnings in a swoop, and delivery executives had to keep doing their job in spite of health hazards. However, aggregators such as Ola, Uber, Zomato, Swiggy and Dunzo claim to have supported their workers through their relief funds. 

That initiative seems to have given the Indian government an idea as it was preparing to publish the second draft of a social security code for unorganised sector workers. The rules, which include aggregation platform workers, mandate several social security measures such as life insurance and accident cover. But the surprise came when gig economy companies were asked to contribute 1-2% of their annual turnover towards a social security fund. 

But all necessary details – the funding (the cost to be borne by the companies and the government), which government agencies will shoulder the financial burden, what penalties aggregators may face for non-compliance and how the redressal mechanism will work – are yet to be specified.    

Making Policy That Hurts All Stakeholders

The biggest concern gig workers have against the proposed social security code is that it may come back to bite them as it mandates a 5% deduction in pay for a contribution towards the said fund. Moreover, they are worried about the portability of their money when they decide to shift from one platform to another or work for multiple apps-based services. A lot of gig workers do it on food delivery and cab aggregation apps. For instance, someone could work as a delivery executive during the day and drive a cab in the evening or even switch between two delivery apps or cab aggregation apps based on demand and payment.

Others are concerned as well.

“This will certainly add to the cost of a company both in terms of contribution and compliance. While the regulation intends to formalise the gig economy, we need to wait and watch on how the business models for cab aggregators will adapt to the slew of regulatory changes impacting their bottom line,” says Ankur Pahwa, ecommerce sector leader at EY India.

According to a Financial Express report that quoted data from management consulting firm Redseer, the number of app-based cab rides in October 2020 stood at 30 Mn, which is around 44% of the 68 Mn rides booked on these platforms in January this year. Although commuters are back on the road after the pandemic shock, it will take some time to reach the pre-Covid cab demand even as the country reels under a recession.

The guidelines will certainly increase the cost of operations as ride-hailing companies are required to undertake driver training, provide insurance cover, conduct medical tests and get police verification done. Add to that the cap on surge price and the cut on their fees, and we get a gloomier picture. It may also mean that the likes of Ola and Uber would be compelled to inflate fares even during non-peak hours when cars are available. 

“The policy document aims to impose similar conditions, which are now faced by taxi companies. Moreover, the fare format will certainly increase the cost for riders,” says Jaspal Singh, a mobility expert at the management consulting firm Valoriser Consultants.

This may disappoint commuters celebrating the surge price cap, but let us look at a probable case. If the availability of cabs is not a problem at 2 p.m. (there will not be peak-hour demand in the afternoon), a cab aggregator could charge 1.5x to make up for the margin it lost due to the cap during peak hours.

The biggest victim, however, could be the startup ecosystem as investors will not be keen to bet on a new company in a sector plagued by stringent regulations. But it is not just the ride-hailing space that has fallen foul. Last week, we wrote about the pall of gloom that descended on the digital news segment due to another draconian law. 

Of course, the Motor Vehicle Aggregators Guidelines and the social security draft code are not really aberrations. But half-baked regulations rarely do any good and may leave all stakeholders reeling.

Driving Into An Electric Future

One bright spot in the Motor Vehicle Aggregators Guidelines is that the fare regulation it prescribes do not apply to electric vehicles, or EVs, a segment that the government has been championing for a while now with numerous policy pushes and subsidies. This has led technology startups and established automobile companies to bet on a future that is going to be electric.

Bengaluru-based Ola Electric, which is gearing up to launch electric scooters in India and Europe, will price its maiden two-wheelers at INR 90,000-95,000 per unit, according to three people aware of the development. Meanwhile, Amazon is reportedly in talks with a clutch of EV manufacturers to procure customised electric vehicles for last-mile deliveries.

The ecommerce giant is in talks with both automobile giants and homegrown startups, including Mahindra Electric, Kinetic Green, Altigreen, e-trio, Gayam Motor Works and Delhi-based EV aggregator SmartE. 

Driving Slowly Towards Easy-To-Access Agri Credit

While policymaking on cab aggregators, the gig economy and electric vehicle fronts are in a state of flux, these impact only the urban India. In spite of the rapid urbanisation after opening up the country’s economy in the 1990s, the majority of the Indian population resides in rural hinterlands and depends on agriculture for livelihood.

This is why the Indian government’s recent agricultural laws have seen such mixed responses. It is now clear that our farmers still lead a precarious existence and are wary of anything new that might disturb the status quo. One of the most stagnant areas that continues to trouble them is easy access to agri credit. 

The reasons are many, from poor availability of agricultural data and inadequate digitisation of land records to slow adoption of digital transactions in villages and the lack of physical presence of startups on the ground. Although the Indian government seems to be on a legislative spree to regulate multiple sectors, agri credit is one area that has missed its attention despite its thrust on a ‘Digital India’.

As the tumultuous year comes to an end, and most sectors struggle to return to the pre-Covid levels of business, the government has its task cut out. It has to walk the tightrope and design well-thought-out laws to help revive battered industry segments and extend an adequate social security cover to all workers. 

If the government cannot get its act together, more disgruntled workers would come out into the streets, investors would flee and businesses would shut down — an abyss from which it would be hard to crawl back. 

Until next time,

Deepsekhar