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How app-based taxis are advantageous

V Sridhar, October 8, 2015: 22:59 IST
There have been numerous criticisms of Indian start-ups mimicking the US ones and not being innovative, that start-up valuations are too high, that it is just a fad and that it will pass away.

However, Bengaluru, ranked No 15 in the start-up ecosystem map of Compass, is joining hands with Bay area and Beijing in disrupting the extant ways of doing business through technology interventions.

Here is a look specifically at how the technology-enabled taxi aggregation business is challenging the extant model of public transport in various cities of the country, especially Bengaluru, which while being the start-up capital is also well known for its massive traffic gridlocks.

A simple back-of-the-envelope calculation of taxi aggregation service shows that they have improved the productivity of drivers in the country, especially in the mega cities.

Before Ola, Uber, TaxiforSure came, the standard rate for hiring taxis used to be eight hours, 80 kms, for about Rs 1,500. Though one used to hire vehicles for eight hours, on an average the taxi drivers may be occupied about 50 per cent of the time during the contracted period.

Now, with technology to locate a nearby taxi on demand, it is possible for taxi aggregators to provide the consumer a taxi only for as many hours as needed. At the rate of about Rs 250 (for a run of about 20 km in a city covered in an hour), the consumer gets to ride a taxi for Rs 1,000, for a four-hour occupancy and about 80 km coverage, much less than Rs 1,500.

In the previous case, however, the driver, thanks to data analytics and intelligent on-demand matching, was occupied for all the eight hours and earned Rs 1,600 (with 20 per cent going to the aggregator platform companies as transaction fee).
In this case, due to efficiencies in allocation, and increased marginal productivity of drivers (that is, from four hours to eight hours), the wages for drivers have increased, the consumer is better off, and the dead-weight loss due to inefficiencies has been considerably reduced.

Ride-sharing service

The taxi aggregators have now started a ride-sharing service. Thanks to technology, intelligent routing of vehicles is now possible thus reducing “last mile” hiccups and minimising wait times. If, on an average, every taxi is shared by three persons during peak-time, the number of single-person cars on the road reduces considerably, drivers earn substantially more, consumers pay substantially less with the result that deadweight loss significantly reduces.

This method tremendously increases productivity of drivers, thus contributing to the national and regional economy. It reduces congestion on the roads, improves commute time for consumers and hence, productivity of office-goers.

Though the above arguments need to be tested, on the hindsight, let us look at the alternative ways that are being implemented by the governments for reducing urban road congestion and improving commute time. For example, the Bangalore Metropolitan Transport Corporation claims to ferry nearly five million passengers every day, and the Bengaluru ‘Namma Metro’ claims to have decreased travel time end-to-end anywhere from 33-44 minutes.

However, the main problem with most of the public transport options, be it long trailer buses, or metros is that, except in a very few cities, the last mile of going from home to the nearest bus stop or Metro is still a problem. Though autos have filled this demand, they are unorganised with drivers being arrogant at times and demanding relatively high charges for short distances.

A taxi aggregation service is not without problems, too. Due to intensity of supply-demand matching and driver incentives based on number of trips made, the drivers are aggressive on roads.

]Hence, regulation is certainly needed to bring driver responsibility and aggregator responsibility, so that the advantages of these types of services are not wasted. However, the governments at all levels need to consider this as a possible option in their urban transportation solutions.

In this context, it is worthwhile to note that during 1991-2001, the one-way travel time in cities increased. In Bengaluru, for example, it increased from 25 minutes to 40 minutes. It should now be clearly more than an hour. Any initiative to reduce the same is more than welcome!

(The writer is Professor, IIIT, Bengaluru. Kala Seetharam, Professor, ISEC, Bengaluru, provided inputs to the article)

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