Memo to Kejriwal: Ban on Uber, Ola surge pricing is of little help for consumers

New Delhi - Is the Delhi government being short-sighted in banning surge pricing by cab aggregators like Uber and Ola, specially during the ongoing Odd-Even restrictions?

 Memo to Kejriwal: Ban on Uber, Ola surge pricing is of little help for consumersSurge pricing is a global phenomenon which means commuters have to shell out higher fares at certain times of high demand or when cab drivers are unhappy with incentives by the cab aggregators and do not wish to work. It is something that San Francisco-based Uber, for example, uses globally. And faces ridicule for, globally.

So should surge pricing be allowed in a super price sensitive market like India so that commuters continue to get cabs or should it be banned? In the past, Uber has been heavily criticised for applying surge pricing in times of disaster too. Surge pricing can take up fares several times the normal fare on a route but the commuter is made well aware of the surge before he makes the booking.

The Kejriwal government has earned some brownie points since Monday (18 April) by prohibiting taxi aggregators from using 'surge pricing'. This may have stopped high fares but has not really helped harried Delhiites. Commuting has anyway been a challenge for most since Monday because of the Odd-Even restrictions and now, aggregators are playing truant. No cars available. This is what has been appearing on Uber apps of many Delhiites today.

A few minutes back, Uber sent out a text message to users saying this state of affairs is the result of suspension of surge pricing. But Ola has been silent until now over the impact of surge price ban on cab availability.

Earlier this month, Karnataka also banned surge pricing. This prompted Uber to send out mails to its customers saying its pricing ensures reliability and availability for those who agree to pay a bit more on occasions such as weekends and holidays.

“It’s a bit of economics 101: supply and demand adjust in response to price changes...Airlines and hotels follow the same practice," the mail said.

That is the point really. Should authorities allow businesses to run as free market enterprises or should they be seen interfering to set prices on populist demands? This has been a point of heated debate in the airline industry too, for example, where exorbitant prices during festivals and peak seasons have lead to much flyer heartburn.

In India, hundreds of complaints pour in each year about steep fares during Diwali, Holi, Christmas holidays and the peak summer rush. Last year, Prime Minister Modi himself took up this issue for NRIs in the Gulf region when the Indians there complained about exorbitant fares while returning home for festivals.

Unlike the cab aggregators, the aviation sector does have a regulator in DGCA but this body is primarily a safety regulator and is not really equipped to give dikats on pricing. A few years back, after the ministry of civil aviation was flooded with complaints by MPs and aam aadmi alike about exorbitant air fares, the DGCA defined a fare band.

This meant airlines could not price their tickets above or below the band, though they had the freedom to price anywhere within the band. This band had been devised for each sector based on feedback from airlines themselves. This seemed a sensible solution at the time but has been facing constant criticism, since flyers continue to allege steep fares.

Now, an informal 'nudge and wink' policy has been adopted by the mandarins of the Rajiv Gandhi Bhawan, specially after the PM's intervention. Instead of taking any overt action against airlines or setting prices, a simple warning was issued: do not keep last-minute fares or peak season fares multiple times the average fare on a sector.

The airlines were told, informally, to restrict the highest fare on each sector to maybe two or three times the average fare at best. Not 10 times or more, as was happening.

This approach killed two birds with one stone. On the one hand, the ministry was not seen as interfering in free market principles by setting air fares and on the other, it quietly managed to bring some sense into ticket pricing.
Perhaps the Delhi and Karnataka governments need to take a cue from this.

In its mail announcing a temporary suspension of surge pricing in Delhi, Uber said on Monday that 92% of the trips in Delhi happened on regular fares, even during the first phase of odd-even scheme (which was in force from January 1 to 15). The mail again said that airlines and hotels are more expensive during busy times.

"Uber is as well. We don't just charge to make a buck - we take a small fee of the transaction, and the vast majority of the fare goes to the driver so that we can maximise the number of drivers on the road. The point is in order to provide citizens with a reliable ride, prices need to go up temporarily."

In its response to the Delhi government diktat, Ola's Business Head (North) Deep Singh said, “To make Govt’s Odd Even initiative a success, Ola has temporarily pulled out Peak Pricing in Delhi NCR. We have also rolled out an on-ground campaign where volunteers are spreading the message of ride-sharing and car-pooling in support of the scheme........A lot of demand is being witnessed in business districts, around metro stations and other popular areas in the city.”
According to this report in the Hindustan Times, an online petition against surge pricing was started two weeks ago and had gathered 19,500 signatures until Monday noon.

Meanwhile, the Delhi government said on Tuesday 18 taxis belonging to Ola and Uber have been impounded for "over-charging" clients and the action was taken after commuters complained on the helpline provided by the Delhi government.

Apart from the quantum of the increase in fares during surge pricing, cab aggregators are also facing flak for the lack of transparency - by how much will fares rise at non-peak hours due to cab shortage has not been clear to commuters.

Bringing transparency into pricing is also necessary for these companies to earn trust, though their oft repeated argument on this is: cab hailing is a dynamic function where no one can predict from one minute to the next how many cabs will be needed at which locations in a city. Similarly, predicting how many drivers will be ready to take commuters on their chosen routes and therefore ensure cab availability without surge is impossible to predict.

Cab aggregators are providing a useful service, something which the kaali peelis and the radio cabs are unable to - cab availability and pricing (without surge) remain an issue with these two categories in Delhi. It would be in everyone's interest to find a middle path to this surge pricing row.

Updated Date: Apr 19, 2016 18:51:09 IST