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Why Arvind Kejriwal’s surge against Ola and Uber is cheap populism

Part two of the odd-even traffic plan in Delhi has seen a new enemy emerging for the AAP supremo and Delhi Chief Minister Arvind Kejriwal – mobile app based taxi aggregator companies like Ola and Uber. Kejriwal has found out that the “surge pricing” technique adopted by these companies is nothing but “robbery”.

If you have used Ola or Uber, many of you might be inclined to believe that this surge pricing – charging more than the normal rate during hours when the demand is high – is indeed robbery. Because who doesn’t love things at a cheaper price?

During the odd-even plan in Delhi, the demand automatically goes up as on certain days, some cars can’t ply on roads based on the last digit of their registration number. This causes surge pricing to become more frequent, making you feel that you’re being fleeced.

People would have tried to convince you that this is exactly how the markets work – price goes up when demand goes up – but then you think this all talk about “free markets” is just textbook arguments. It can’t work in India as we are not a capitalist economy.

Public transport is a public good and thus a government – especially in a country like India that follows mixed economy – has all the rights to bring regulations in this sector. After all why should you be paying high to access a service that is one of the basic needs of the modern citizen – transport?

And earlier today, Kejriwal hinted that he may force Ola and Uber to drop surge pricing permanently:

So is this “regulation” by Kejriwal in line with market principles of a mixed economy?

No.

While this is totally in line with the kind of populism we have seen in our country in name of socialism (even by the so-called center-right parties) and public good, such interference in business models of private companies is not in line with any economic principle.

First of all, surge pricing for transportation is not a new concept brought in by likes of Ola and Uber. It is basically a variant of dynamic pricing, and of late, even government enterprises like the Indian Railways have employed dynamic pricing to rationalize demands and revenues. And it is reported to be a hit.

Then you have airline ticket pricing, which is all about dynamic pricing – sometimes you end up paying almost 5 times more than normal fare if you don’t book in advance. Even the national carrier Air India employs this dynamic pricing.

You might argue that road travel is a daily need and thus should be treated differently from air and rail travel, and you’re right. And that’s why regulations already exist in this sector.

The kaali-peeli taxis or the CNG autos get licenses and they have to stick to a predetermined fare. Apart from that, there are government owned and private operated buses for public transport, and their fares too are regulated.

So your daily need of commuting by road was and is already regulated. Ola and Uber are services that are different from this existing public transport system.

Those are innovations by private enterprises, and you can’t force them to be a part of the existing regulated public transport system. People need choices.

Before Ola and Uber came, remember you were already paying too high for private AC cabs. Their innovation brought down the rates, and then no one was complaining. If they charge too high, they will lose the customers, but you can’t force them to be losers, which is what Arvind Kejriwal is doing.

You might argue – what would happen if all taxi drivers join Ola and Uber and junk the public transport system? Basically you’re talking about monopoly. And the government has all the rights to interfere where there is a risk of monopoly.

But do we have any data to back this claim? Is anything like this happening? Are drivers giving up their kaali-peeli taxi licences to join Ola and Uber? And even if it may happen, the ideal government response should be to bring in rules that incentivizes being part of the public transport.

Say, it would be perfectly alright to have two different rates of challans for those who are part of the regulated public transport system and those are part of the private operations. Or something like giving benefits like insurance and free medical checkups to drivers who are part of public transport system. That’s how it should be in a mixed economy.

That’s how you strengthen the public transport system, by helping those who are part of it, not by threatening and weakening the private ones. You hold hands, not twist arms. Arm twisting is part of a totalitarian communist economy, not mixed economy.

What the Delhi Chief Minister is doing may make him popular among certain sections that are are fan of government control and are not willing to analyze things from the above perspective, but this is not good for innovation and private businesses.

And currently it is not turning out to be good even for public convenience. A lot many people complained that cabs were not available on Ola and Uber as they had to remove the surge pricing. As feared, they couldn’t match the supply with increased demand. People had to wait for too long or take auto in the heat, and then they were charged higher by the autorickshaw drivers!

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