09/12/2014 5:04 PM IST | Updated 15/07/2016 8:24 AM IST

Home Ministry Advisory Asks States To Ban App-Based Cabs Such As Ola And Uber

In this Monday, March 24, 2014 photo, traditional black-and-yellow licensed cabs stand parked waiting for customers at a railway station in New Delhi, India. Most licensed taxis are banned from having air conditioning under an archaic municipal rule, leaving passengers suffering with rolled-down windows in suffocating heat and noxious pollution. 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/Saurabh Das)

The Union Home Ministry's advisory this morning asking states to ban the operation of all app-based cab aggregators has plunged India's organized cab industry into uncertainty.

If the states decide to implement the non-binding advisory, nearly 80,000 cabs might have to go off the roads overnight, affecting the livelihoods of numerous families. Responding to public anger after the Delhi rape case in which a driver of an Uber cab was involved, Delhi has already implemented the ban. No other state has announced a decision on the matter yet. Decisions of Maharashtra, Tamil Nadu, West Bengal and Karnataka will matter to the cab companies the most as these states are home, respectively, to the large cities of Mumbai, Chennai, Kolkata and Bangalore, where a majority of these cabs ply.

Union transport minister Nitin Gadkari, notably, has opposed banning cab services.

In its memo, the home ministry has split the taxi industry into two categories, and advised states to ban the more popular app-based aggregators such as Ola and TaxiforSure, which has grown rapidly in recent years and has attracted venture capital money from players such as SoftBank. The other, older and less popular model is that of the conventional radio cab service, which requires companies to set up a 24-hour call centre and install conventional taxi metres that display local fares and comply with a slew of other regulations.

The Uber rape incident seems to have woken India's various authorities to the existence of the app-based aggregators. At least they are acting like it, although these companies have been raising money from funds overseas, have been involved with a very public back and forth with the Reserve Bank of India and have been advertising aggressively. India's roads are dotted with cabs carrying the decals of app-based aggregators such as Ola. But all of a sudden, nobody is really sure under what laws they had been operating.

App-based aggregators such as Ola Cabs and Uber think of themselves as tech platforms where drivers and passengers can match their needs. The real-world permit under which the cabs ran was the taxi permit issues by local transport authorities to the owners of the cab and the commercial driving license (and a Public Service Vehicle badge) issued to the driver. But here is the catch—such taxis have been mostly plying under a so-called All-India Permit. Many cities, including Delhi, have regulations banning taxis with such permits providing point-to-point cab services. To provide such services, you need a traditional black-and-yellow taxi permit, or a fleet of cabs with a radio taxi license, such as Easy Cabs.

Platforms such as Uber and Ola has so far operated as the absence of regulation about such services acted as an enabler. With this incident thrusting such services into the focus, that might soon change.

In fact Delhi's ban on Uber is for violating the city's regulations about point-to-point service, and not for the rape incident. The incident brought attention to the company and authorities, under pressure to be seen as doing something, dusted up the rulebook. But to consistently apply the rule would mean that all taxis operated through app-based aggregators will be thrown off the roads.

Among the aggregators, Ola has the most market share, at 60%. Meru has 16%, TaxiforSure has 14% and Uber has 5%, according to a Softbank report.

Ola Cabs alone have 40,000 cabs in their network. Between Ola, Uber and TaxiforSure, industry sources say there are perhaps 80,000 independent cabs operating across the major cities. If the states with the major cities decide to heed the Home Ministry advisory, the supply of cabs in India's cities might suddenly shrink.

Meru Cabs operate on a hybrid model--they have a traditional company-operated fleet, as well as a modern app-based taxi aggregation network.

A spokesperson for Ola Cabs said the company was unaware of the home ministry advisory. Meru CEO was unavailable for a comment. A spokesperson for TaxiforSure emailed the following statement: “TaxiforSure has not received any official communication from the authorities of Delhi on stopping our partner vehicles. We will work with the government to ensure the convenience and safety of the people, especially women.”

Prime Minister Narendra Modi is learnt to have sought a briefing on the issue from National Security Advisor Ajit Doval. The two will hopefully reach the sensible conclusion—that banning app-based cabs do not enhance the safety of passengers. Reduced supply of cabs will in fact hinder the safety and convenience of millions of passengers.