Indian taxis in heavy traffic as competition grows
Siddhartha Pahwa, the group chief executive of Meru Cabs, was forced to call an emergency meeting with his senior staff at the beginning of the week.
The Mumbai-based taxi firm was trying to strategise on ways to make sure that its cabs are as safe as possible following the news that hit global headlines of an alleged rape of a female passenger by a driver in Delhi working for the international taxi app Uber. This resulted in a ban on unregistered taxi firms in Delhi, including Uber, Ola, and TaxiFor Sure, which were operating as technology companies.
“The consumer may feel maybe it is not that safe,” says Mr Pahwa.
Meru had already put multiple layers of safety procedures in place, he explains, including compulsory police verification of all its drivers, keeping biometric profiles of them, offering a “trip tracker” facility which allows passengers to nominate a family member or friend to see information about their journey, as well as a emergency button feature on its app.
“We have significantly more processes in place than what they [Uber] were doing.”
Now it is considering how it can do even more. With India’s taxi market growing at a rapid pace, it is vital for operators to reassure customers. Despite the challenges posed by recent events, the industry is forecast to become a US$9 billion market compared to a $7bn today, according to research by Savaari Car Rentals, a taxi brand available in 60 cities.
India’s taxi industry is dominated by the “unorganised” market – such as the black-and-yellow cabs in Mumbai, which are privately owned but operate under fares set by the state government. These include the old, rickety, wheezing Premier Padmini cars, which often have holes in the floors. They are increasingly being replaced by hatchbacks from car makers such as Maruti Suzuki and Hyundai. But they are often uncomfortable and poorly maintained too, with no air conditioning and drivers who spit paan. It is common for these taxis to refuse to take passengers even if they are available.
Spotting an opportunity, this has led to the rise of private radio taxi operators offering air-conditioned cars, well-trained drivers, and mobile and online booking facilities. Meru launched in 2007 with private equity finding from India Value Fund and has become one of the largest radio taxi companies in the world. Ola was founded in 2011 by two young IIT Bombay alumni, Bhavish Aggarwal and Ankit Bhati, to become another of the major cab companies. Other firms include TABcab, which has the biggest fleet in Mumbai.
Uber, which lets you request a cab through an app, entered the country last year. Uber’s fares in Mumbai, for example, start from a base fare of 50 rupees (Dh2.93) plus 1 rupee per minute and 15 rupees per kilometre, with a minimum spend of 125 rupees, in a car such as a Toyota Etios. A ride in a black-and-yellow taxi costs a minimum of 21 rupees up to 1.6km, after which it is 13.96 rupees per kilometre.
“The radio cabs have had a rapid growth, thanks to affluent Mumbaiites who do not mind paying for convenience,” analysts at CLSA wrote in a recent report. “The radio cab business has emerged as one of the fastest growing businesses in the Indian transport sector, with meaningful investments by private operators. The rapidly changing landscape is benefiting consumers who at one point of time were at the sole mercy of black-and-yellow taxis.”
It adds that radio cabs could be considered a more attractive and economical option than owning a car.
“In the recent past, companies started capitalising on this market and in no time several large as well as small radio taxi operators expanded rapidly in the Indian radio taxi market,” according to a report by TechSci Research.
“Since, 2009 the market has had a compounded annual growth rate of 41.9 per cent in terms of market revenues. Increasing consumer disposable income along with a poor public transport system in the country has given rise to a new market of radio taxi services.”
It said that there were enormous untapped opportunities in the sector, particularly in Delhi-NCR, where close to 30 per cent of calls had to be dropped by companies because they did not have enough vehicles available to meet the demand.
Gaurav Aggarwal, the founder and chief executive of Savaari Car Rentals, is bullish on future growth.
“Only 2 per cent of Indians own cars,” he says. “The economy is growing, the buying power is increasing, people are travelling. The market is huge, of which only 5 per cent is organised.”
India can be a difficult market to operate in, however. Taxi operators in Goa, for example, went on strike and staged a protest earlier this year when it was announced that Ola was entering the state.
Uber has faced a series of challenges in India, aside from the latest incident. It came under scrutiny over not paying service tax and was also forced to change its payment system after it was accused of not complying with Reserve Bank of India norms.
Although a number of players have entered the market, Mr Pahwa says that this is only having a positive impact on his business, as it encourages even more people to start using taxis and it has prompted the firm to raise its standards to stay ahead, particularly in terms of technology.
“There is more than enough room for two to three quality operators to survive over the next 10 years,” he says. “I think those organisations that have not been able to keep up with the technology would start facing some sort of heat in the coming months. You have to be ahead of the pack, or at least at par in terms of technology.”
The company had 6 million consumers in its first seven years of operation. Now it is adding 200,000 new consumers every month, he says. In the past six months it launched in a new city each month and it is planning to be in 25 cities by next year and 45 cities by 2016. Meru became profitable more than a year-and-a-half ago, he says.
One of the reasons that it is able to expand so rapidly is because 95 per cent of its drivers own their own cars, so Meru does not have to invest heavily in buying vehicles.
“We want to expand this category at a very fast pace and would need to invest a lot more money in marketing activities, and therefore we are evaluating if any more funding is required,” he says. “We may look at bank funding or we may raise some funds through the public or private markets.”
Jamshed Khan, 36, originally from Varanasi, has driven a black-and-yellow taxi, which he owns, in Mumbai for the past eight years, earning about 30,000 rupees a month. He says that he does not consider the growth of private taxi firms to be a threat to his livelihood.
“It hasn’t affected me in any way,” he says. “I still get the same number of passengers that I always got.”
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Published: December 13, 2014 04:00 AM