Karnataka's ban on Uber, Ola 'surge' may not help users

BENGALURU: Karnataka succeeded in doing to cab aggregators what even the New York mayor failed to do, despite some intense efforts for two years. The state has significantly constrained the aggregators' ability to do what is called surge pricing, raising prices during periods when demand for cabs exceeds supply -- at peak hours these could be three and four times the regular fare.

On Thursday, a day after the official announcement about capping fares at Rs 19.50 for AC cabs and Rs 14.50 for non-AC cabs, both Uber and Ola stopped surge pricing. Repeated checks by TOI during peak hours showed that prices remained stable.

Uber and Ola have so far declined to comment on the state's move, but Uber has said many times in the past that surge pricing is an essential part of its operations, that by raising prices during peak hours, it encourages its drivers to get out on the road to keep up with increased demand. It is also widely believed that these higher prices contribute significantly to the aggregators' revenues and to drivers' incomes.


Several analysts who TOI spoke to said the move could significantly impact the aggregators' operations, since Bengaluru is among the top two markets for them. And it could get worse if other states follow Karnataka's lead.

"This is an anti-innovation model. Other transportation modes are not regulated like app-based cab aggregators. Policy makers are trying to form policy without having any understanding of the business," said an industry expert who did not want to be named. "Other transportation modes" was a reference to autorickshaws that unofficially charge more during peak hours. "If consumers are ready to pay extra, why is the government playing regulator?" he asked.




An analyst told TOI that it costs the driver of an average hatchback Rs 8-9 per km, including fuel and maintenance charges. If this is correct, it indicates how important surge prices are, considering hatchback fares are currently at Rs 6 and 7 per km (base fares and per minute rates would improve this slightly).


The aggregators typically take a commission of 20%. The drivers' income is what's left after bearing fuel and maintenance costs and the commission. Many drivers also make monthly loan repayments for the cars they buy.