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Tuesday, March 26, 2024
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HomeOpinionSharing economy is also caring when it comes to city taxis

Sharing economy is also caring when it comes to city taxis

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The proposed city taxi rules in Delhi and Mumbai are likely to reduce jobs for drivers, and increase congestion and pollution.

It appears from news reports that the Delhi government is in the process of enacting a ‘City Taxi Scheme, 2017’. The scheme has proposed that it will “ban” taxis with ‘All India transport permit’ (AITP) from offering their services within city limits and restrict them to offering outstation trips only.

The Maharashtra state transport department too had recently proposed an identical measure for Mumbai. The Bombay High Court is presently looking at litigation challenging these rules. Among other stakeholders, this proposal is expected to hurt a significant number of taxi drivers using AITP, to offer their services via ride-sharing companies such as Uber and Ola.

The motivation for such permit-based regulation often appears to be based on what policy analysts like to call “race-to-the-bottom” and “negative externality” grounds. The “race-to-the-bottom” argument is that when left without any entry barriers, the taxi market would lead itself to ruin through excessive competition among suppliers. The “negative externality” argument for regulation relies on pollution and congestion that excess supply of taxis leads to, and justifies regulation.

Both these arguments have found resonance with well-meaning policymakers because regulation is seen to serve public interest here. But on evaluation, regulation may not serve public interest and will, instead, impose costs on the more vulnerable sections of society.

First, foreclosing the AITP route would act as an entry barrier for potential drivers interested in operating via a ride-sharing platform. It would force taxis hitherto operating under it to apply for a city taxi permit. The city taxi permits are essentially rationed by the transport department, and thus demand will outstrip supply. Even when they are freely available, the transport department may price them at a level that a significant number of drivers will simply find unaffordable to apply for.

For example, Maharashtra has proposed a special category of permit for taxis on ride-sharing platforms, the price for which has reportedly been set at ten times the price for “regular” taxi permits. This creates rent-seeking opportunities for intermediaries who add no value to the chain other than to buy and hold the permit. Such artificial entry barriers reduce job opportunities and competition in the taxi market. For a country already facing job creation challenges, unreasonable occupational licensing restrictions may exacerbate the problems.

Consider the counter-factual: In the absence of this regulation, many more suppliers would compete to meet the demand, thus lowering prices and increasing consumer choice. Would there be a “race-to-the-bottom” between them? Not necessarily. The pressure of competition would force the operators to innovate around their offerings, which promotes consumer choice. This argument becomes stronger in a market like ride-sharing where riders can easily switch between options by simply logging into the app of another service provider. Thus, the “race-to-the-bottom” argument appears to be less robust now than its initial appeal given the present composition of the taxi services market.

Also, limiting the use of AITP cars for tourist purposes would potentially increase vehicular pollution. As the Committee to Promote Urban Mobility observed in its report, limiting the use of AITP cars to tourist purposes would lead to increased wait-times and personalised car ownership[2] (and thus higher vehicular emission). To the extent existing AITP-vehicles use diesel, tailored solutions like off-setting charge may be more effective than broader restrictions.

Finally, there is evidence that artificial restrictions on supply of ride-sharing options may hurt commuters in far-flung and poor neighbourhoods. A Manhattan Institute study in New York City found that Uber was much more focused on the poor areas of city outside Manhattan than regular taxis. Twenty-two per cent of Uber pick-ups originated outside Manhattan or outside city airports compared to 6 per cent for yellow cabs.[3] This is because the algorithm “signals” the drivers about “crystallised” unmet demand. Ride-sharing companies also use innovative pricing nudges to motivate behaviour. [4]

Regular taxi operators usually lack one or both these instruments. In summary, restrictions on intra-city operation of AITP vehicles will potentially reduce employment opportunities for drivers, increase wait-times and congestion for riders and also increase pollution. Policymakers should not adopt them.

Mandar Kagade is a consultant with Indira Gandhi Institute of Development Research. These views are personal.  

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