It’s a bumpy ride ahead for app-based cab aggregators like Ola and Uber in Karnataka. This was the first state in the country to bring out a detailed set of notifications in April for the new-age app-based players that have so far been running outside the web of regulations around the country. However, the regulations, which aggregators need to follow to secure a licence, are myopic and ridden with loopholes.

The rules for aggregators came amid multiple reports of cabs being fined or impounded for plying without a licence or charging customers increased fares even as cab operates insisted that they had turned off surge pricing.

Surge pricing allows cab companies to charge higher fares from customers when demand peaks and has been a major point of contention between the state government and cab operators.

The new guidelines, released in April, capped the fares that can be charged by these aggregators at a maximum of Rs 19.5 per km for an air-conditioned cab and Rs 14.5 for a regular taxi.

While this may come as a relief to customers – who at times have had to pay six or seven times the price if there is surge pricing – experts claims that the rate caps do not take into account ground realities of operating a transport aggregation business in a metropolitan city like Bangalore, the capital of Karnataka.

Fine print

For instance, both Ola and Uber have fares ranging from Rs 6 per km to Rs 17 per km in the city, depending on the size and kind of car the rider wants. On paper, these seem well within the limit in the government-suggested guidelines, but in reality, there are caveats to this and additional charges that a customer has to bear.

For instance, both major taxi aggregators have a ride-time charge of between Rs 1 to Rs 1.5 per minute for the entire duration of the ride. This can add up to a lot, especially in a gridlocked city like Bangalore.

For instance a five-km journey can take up to a hour during rush hour. The customer, then, will have to pay Rs 60 over-and-above the per-km charge.

This means the customer will be paying an extra Rs 12 per km. This, when coupled with an average fare of Rs 10 per km, this takes the final per-km charge to Rs 22 – higher than the limit dictated by Karnataka’s transport department.

Confusions and tangles

Cab companies are unsure whether they will be penalised for this – and are confused about the rules as a while, as well as their implementation.

Moreover, in a fresh legal tangle, Uber recently moved the Karnataka High Court stating that the rules are “unconstitutional” on several grounds – one among them being that the rules had been introduced through a section of India’s Motor Vehicles Act, which the cab aggregator said it cannot fall under as it simply acts as a via media, with the help of technology, to connect a passenger with a vehicle and driver.

While the cab companies are not sure how the rules will finally play out and if they are going to be penalised for charging above the dictated rates, the whole set of rules is under a judicial dispute as Uber has claimed that the rules are “unconstitutional” on many counts.

While Ola has been given a license to ply under new rules, Uber is currently operating without a license in Karnataka.

The court questioned the rules framed by the state transport department. “The question I want to know is whether the rules framed by the government are violating the constitutional provisions of the country,” Justice Raghavendra Chouhan said. “”Rules in itself are not constitutional. They are subject to contention. They can be anulled as unconstitutional on legal grounds.” Hearing in the case is ongoing.

The spokesperson for Uber refused to respond to's queries about the confusion over pricing in the new guidelines, claiming that the matter is sub-judice and Uber has stated clearly that it cannot comply with these guidelines that are likely to threaten the sharing economy.

Ola, on the other hand, did not respond to’s email seeking comment. An employee from the company, however, said Ola has received a licence and will go by the rules.

“Though we have cars charging up to Rs 19 a km, a majority of our bookings come for cars that cost Rs 10 or so per km,” the official said. “Thus, there’s plenty of room for us to include ride-time charges without violating the policy. However, it’s still not clear how the government will enforce the rules or keep a check on effective fares.”

The transport department, meanwhile, insists that ride-time charges or any kind of additional pricing will not be exempt under the new rules and it is the onus of cab operators to make sure they do not exceed the limit set in the guidelines.

“The fares are set clearly for everyone and you cannot charge more than Rs 19.5 [per kilometer],” said HG Kumar, Additional Commissioner for Transport, Bangalore. “If they are charging beyond that in any manner, it is a violation of the law. They cannot levy ride-time charges if the fare overshoots the limit.”

When prodded about the loopholes regarding pricing in the policy that could impact the taxi companies’ business, Kumar refused to answer and reiterated that the government will act if there are complaints against the cab operators.

“They have to manage ride-time charges within the designated fare itself – nothing beyond that will be allowed,” he said. “So far I haven’t received any complaints against anybody. I will certainly take action if I do.”

However, the transport department also hasn’t specified how the price ceiling will apply in case of shared rides – through Ola Share, Uber Pool and the like, which are gaining popularity as they offer a cheaper alternative to customers. Here, the fare is split between two or more customers going in roughly the same direction, but they both end up paying ride-time charges for the overlapping period – implying that the effective per-km rate going to the service provider can be considerably high.

The guidelines state that those found violating rules will have to pay a fine of Rs 5,000 to Rs 10,000 and could also have their licence cancelled for one to six months.

Impractical limit

Transportation experts, meanwhile, said the policy is half-baked and the government should have consulted more stakeholders before setting arbitrary price ceilings that may be impossible to match.

Pawan Mullukuttla, transport expert at WRI India, said the government should have refrained from setting a strict price ceiling and should have gone with a multiplier limit on surge pricing to boost competition in the market.

“Setting a fare is not the right thing in this situation because you are not providing opportunities for people to innovate or compete,” Mullukuttla said. “If the fares are set so low, the innovation and quality of service is going to go down. The quality of vehicles has already started coming down.”

Mullukuttla said the transport department should have consulted more stakeholders before going ahead with the police. “I am a little surprised that the regional transport office is not convening and framing policy in a transparent manner,” he said. “What is the point of setting up a system that is bound to fail?” he said.