07/12/2014 9:09 PM IST | Updated 15/07/2016 8:24 AM IST

India's Mushrooming Taxi Operators Raise Questions About Safety

In this Tuesday, March 25, 2014 photo, traditional black-and-yellow licensed cabs and private cabs stand at a parking lot at the airport in Mumbai, India. Taxi-hailing smartphone app Uber is making a big push into Asia with the company starting operations in 18 cities in Asia and the South Pacific including Seoul, Shanghai, Bangkok, Hong Kong and five Indian cities in the last year. (AP Photo/Rajanish Kakade)

Taxi companies see India as a market with unlimited potential. Here's why: in a country of over a billion people, only 2% own cars. Meru and Easycabs were the first to capitalize on the need for quality cab service. Meru grew from a single-city operation to a 7-city, 7,000 cab network within a span of 7 years. Private equity firms soon came calling, in a market that is expected to grow 25% this year. By 2025, the market size is predicted to reach $25 billion.

The business model has changed from when operators such as Meru used to own cabs and employ drivers. Now most of them are asset-light, which means they lend their brand to cab operators in exchange for a fee. Meru too, has adopted it partly. The market is now similar to that of Flipkart or Amazon Marketplace, where any licensed cab operator can work for one of the operators. Ola Cabs has used this model to grab marketshare away from traditional leaders such as Meru and emerge as the leader.

Uber, which is now worth $40 billion after the latest round of funding, rushed into India to be a part of this fast-growing market. Uber is not an operator of cabs - it is an app that links customers to drivers. It operates on a three employees per city model, and is now in 10 cities. That means just 30 employees for such wide operations. The business model of Uber India is the same as that in the United States, where it ties up with drivers and doesn't own any cabs on its own. Uber's operations have received wide media coverage, in part because of its spectacular rise in the U.S.

Global funds such as Tiger Global, Matrix Partners and Accel Partners have invested over $100 million in the sector, and more might come. With a market that has "unlimited demand that is only constrained by the supply side," as Avnish Bajaj of Matrix Partners puts it, the sky is the limit.

But as more companies go for the asset-light model, drivers are no longer being employed by companies which have turned into platforms or marketplaces. In their quest to grow fast, the most important requirement -- safety of passengers -- might have suffered.

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