Is surge pricing by Uber and Ola legal in India?

Taxi aggregators like Uber and Ola revolutionised the taxi service system through technology. While these services are extremely popular, their surge pricing systems have invited controversy around the world

By Asheeta Regidi

Taxi aggregators like Uber and Ola revolutionised the taxi service system through technology. While these services are extremely popular, their surge pricing systems have invited controversy around the world. In India, the Karnataka Transport Department recently issued a show-cause notice to Ola for using surge pricing for the taxi fares. Similar restrictions were also imposed against this by the Delhi government.

What is Surge pricing?

Surge pricing is a system where when the demand for taxis exceeds supply, then the rates to be charged go higher. The taxi aggregators say that this system uses simple economics to meet the increased demand — the increase in prices will attract more drivers to the area, and as a result, the increased demand can be met. Once the demand and supply is balanced, prices will go back to normal. The surge pricing systems used by aggregators leads to higher charges during certain times, such as peak hours, holidays, events, etc.

While aggregators state that surge pricing benefits the customers through a greater number of taxis, customers are far from happy. The primary reason for this is the absolute lack of transparency about the basis on which surge pricing is started, how the multiplier increases, etc. At times, the rates could go up as high as 50 times the normal rate.  This system was particularly criticised for its use during tragedies like the Sydney hostage crisis and Hurricane Sandy. In addition to customers, drivers were also reported to be unhappy with the situation, since many would drive down to the location of surge pricing, but within a few minutes, the surge pricing would have stopped.

What do Indian Regulations say?

Since their introduction, these companies have been at loggerheads with various governments and courts, mostly for non-compliance with existing taxi regulations. Protests also came from traditional taxis service providers, who demanded a level playing field with the, until then, unregulated aggregators. Now many nations have introduced or have begun to introduce specific regulations for aggregators. In India, Karnataka and Delhi are the only states to have specifically prohibited surge pricing. Other states are in the process of drafting regualtions.

Advisory by the Ministry of Road Transport and Highways

In India, the Ministry of Road Transport and Highways issued an Advisory to the State Governments in October 2015, recommending that they lay down the terms for the regulation of aggregators.  On the issue of fares, the advisory stated that the State Governments could notify the maximum fares to be charged.

The advisory also gave importance to transparency, and recommended that the rider should be provided with information on the distance and time travelled, the amount to be paid, and on completion of the trip, must receive an electronic receipt. Thus, while the State Governments have been given the freedom to draft regulations and set fares as they deem fit, clearly the aim is to remove the disparity between aggregators and traditional taxi services. If corresponding regulations are imposed, then surge pricing cannot lead to fares beyond the maximum permissible amount.

Karnataka

India saw its first specific aggregator regulations in the form of Karnataka’s new On-Demand Transportation Technology Aggregators Rules, 2016. These rules mandate that the aggregators must charge the rates fixed by the Karnataka government. Since no lower limit is fixed, it appears that taxi drivers can charge a rate as low as they please. While surge pricing is not specifically banned, it appears that it can be implemented provided it does not exceed the prescribed fare. However, the show-cause notice to Ola makes it clear that surge pricing is not permitted. A violation of this rule can result in the license being suspended or revoked.

Delhi

In Delhi, aggregators were asked to register under the existing Radio Taxi Scheme, 2006. This scheme fixes the rates to be charged, allowing the taxi operator to charge less than the rate, and increase rates by 25% at night (11pm to 5am). During the recently implemented Odd-Even Scheme in Delhi this year, the Delhi government made it clear that surge pricing was illegal, and threatened strict action against violators. Thus while aggregators can charge lower rates, they cannot implement surge pricing.

Maharashtra

In Maharashtra, draft regulations have been framed in the form of the City Taxi Scheme, 2015, to deal with aggregators. These rules state that the aggregator must charge fares as prescribed by the Maharashtra government. The fare will be decided by the government based on the cost of the vehicle or its engine capacity. It appears that the rules will not allow even a lower fare to be charged, leave alone using surge pricing. The exact fee prescribed will have to be charged, similar to traditional taxi services.

West Bengal

The most aggregator friendly regulations were those issued in Kolkata through a temporary Order by the Office of the Commissioner of Police, Bidhanagar. This order was issued for a period from January to March, 2015. All that this order said with respect to fares was that the amount to be paid must be conveyed to the customer via an e-mail or SMS.

No further restrictions were imposed on the amount to be charged, nor was anything said on whether surge pricing was legitimate, giving aggregators complete freedom to decide their rates. This Order, though lauded by the taxi aggregators as the ‘right’ way to regulate them, is the exception, and not the rule.

Should surge pricing be permitted?

The general approach by the Central government and various State Governments to this system is similar. Though surge pricing is not specifically prohibited, implementing it will become meaningless given the restriction on the maximum fare to be charged. The lack of regulatory compliance (until recently) definitely gave such aggregators an unfair advantage over traditional taxi services.

While creating a level playing field is equally important, perhaps the government should also consider surge pricing if it does result in an actual benefit to customers through greater supply of taxis. The main issue with surge pricing is the lack of transparency in the system and the unreasonableness of the ‘surge’.

Many economists advocate the surge pricing system itself as a perfect method to deal with a supply-demand imbalance. Research even suggests that the system was highly effective in dealing with increased demand during peak times. Perhaps surge pricing can be permitted, subject to certain restrictions, such as a limit on the multiplier (say a maximum of 3), prohibiting surge pricing during emergencies, etc.

The author is a lawyer with a specialisation in cyber laws and has co-authored books on the subject.

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