IAMAI bats for dynamic pricing, opposes Karnataka govt's flat cab rates

The surprise introduction of flat fares, with no room for dynamic pricing, will have a chilling impact on Karnataka’s mobility ecosystem, according to a letter sent by The Internet and Mobile Association of India (IAMAI) to Ramalinga Reddy, Minister of Transport, Government of Karnataka.

The letter was sent in response to the recent notification on taxi fares issued by the Karnataka Transport Department on 3 February 2024.

“The surprise introduction of flat fares, with no room for dynamic pricing, will have a chilling impact on Karnataka’s mobility ecosystem,” said Chitrita Chatterjee, Associate Vice President and Head of Public Policy, IAMAI, in the letter dated 14 February, a copy of which Business Standard has seen. “We request you to offer the industry an opportunity to consult with you and address concerns that may have led to this move.”

In IAMAI’s view, the notification overlooks the demarcation between city taxis used for street ride-hailing and app-based operators. This is not in line with the intent of the Central Government behind its introduction of a statutory regime for aggregators via the Motor Vehicles (Amendment) Act, 2019.

It is important to note that the Central Government took into consideration the fact that web-based transportation aggregation companies are different and more tech-enabled than normal street ride-hailing. Hence, the inclusion of Aggregators under Section 93 of the Motor Vehicles Act, 1988, which provided special license conditions on platforms. The Karnataka Transport Department also acknowledged this difference by introducing separate rules and fare notifications specifically for aggregator operations.

IAMAI said aggregator taxis should not be subjected to identical fares as traditional taxis. These platforms provide more convenience and facilities to the end customer as well as to the drivers. They do this by providing a technology platform consisting of doorstep pick-up, safety features, customer grievance redressal mechanism, GPS tracking, digital payment options, and insurance which should not be considered equivalent to street ride-hailing.

IAMAI said it was based on this difference between aggregators and traditional offline taxi services that the Central authorities had introduced different taxes on rides booked through aggregators and e-commerce. These are subject to Goods and Services Tax, whereas street ride-hail taxi rides are not.

Dynamic pricing is a well-established practice utilised across various industries to efficiently align supply with demand. This strategy is not just prevalent in the airline sector, but it is also embraced by the Indian Railways and other road operators. Under dynamic pricing models, rates are set by the platform’s algorithm, which adjusts fares based on several variables, such as time, distance, traffic conditions, and the current rider demand and driver supply. This ensures that driver supply is sufficient to meet rider demand through more strategic matching, especially during peak hours. For instance, platforms can direct idle drivers towards areas with high rider demand, allowing both parties to be matched with each other more quickly. Dynamic pricing can enable drivers to plan their work hours more strategically. They are able to work more during high-demand periods where they make higher hourly earnings. Off-peak hours with low demand can instead be used for drivers to rest or engage in other activities.

“The elimination of dynamic pricing severely undermines the livelihoods of drivers who previously relied on the flexibility it provides during peak hours,” said the letter. “This decision not only undermines their income, but also discourages them from catering to high-demand periods, potentially resulting in a significant drop in service availability.”

In the absence of a flexible pricing regime, a significant portion of drivers may opt out of providing trips during peak hours, leading to longer wait times for riders. For instance, in bad weather conditions, without flexible pricing drivers may not be sufficiently incentivised to provide their services, leaving many passengers stranded.

“We may also witness a larger dip in driver earnings due to higher supply and lower demand during non-peak hours due to the newly notified fares,” said the letter.

Customers will be forced to face the situation of locating cabs without doorstep convenience. This may put themselves in uninformed circumstances of not knowing the driver details, no safety system, as well as no customer grievance redressal mechanism available to them. Moreover, the new fare model may result in long-distance trips becoming more expensive for consumers.

A study by the Competition Commission of India also found that as flexible prices incentivise drivers to offer their services. This addresses driver availability and rider demand at a hyperlocal level in real-time.

IAMAI said that imposing uniform fares also disincentivises platforms from investing in differentiated services or sustainable mobility models. This hampers their ability to innovate.

“This notification will adversely impact the city’s mobility ecosystem and undermines the technological advancements that have been the cornerstone of Bengaluru’s global reputation,” said the letter.