The technology-driven disruption by the ride-hailing economy brought hope for Indians struggling to find well-paying jobs. In half-a-decade, the euphoria of initial years has given way to hard business reality: it’s not as lucrative anymore.
For the second time in a year, taxis went off the road last week in Mumbai, one of the biggest markets for Ola and Uber Technologies in India. Cab owners’ grouse: falling benefits as the two giants, yet to turn profitable, cut incentives over the last couple of years.
“Drivers have seen a dramatic fall in their income —by more than half,” Prahlad Tanwar, partner, logistics and transport, at KPMG told BloombergQuint. “At the end of the day, they are businesses that have to evolve and sustain.”
The initial lure of the app-based cab economy was too good to skip. More so, when over half of 130 crore Indians are below 35 years in age and lakhs move to cities every year in search of well-paying jobs. Unemployment hit a 15-month high in February, according to a report by the Centre for Monitoring Indian Economy. India needs 1.6 crore jobs every year for the next decade and a half, Labour Bureau’s 2016 report said. In comparison, CMIE said, the country created 2 lakh jobs in 2017.
Uber’s entry in India in 2013 meant a fierce battle with Ola—both are now backed by Japan’s SoftBank Group Corp. They offered free rides and cash discounts to draw commuters. Demand surged in Indian cities struggling to keep up with a growing population. An assurance of a better income lured drivers, and many bought their own cars.
A driver from Bengaluru who identified himself just as Madesh said he used to earn Rs 60,000 a month. That’s nearly twice a bank or an information technology company offers for an entry-level job. Madesh, who has been driving for Ola and Uber for five years, now makes Rs 20,000-25,000 a month.
The companies have reduced incentives. Earlier, Ola paid drivers Rs 250 a trip with an additional Rs 4,000 for completing 13 rides, he said. They changed it to Rs 5,000 if the driver earns Rs 2,500 in 12 hours, he said. While that sounds like more money, according to Madesh, it isn’t possible to earn Rs 2,500 in cities where each trip is worth Rs 100-150.
A commission system has now replaced incentives. On completing a ride worth Rs 100, Rs 26 go to the company, he said. The remaining Rs 74 will go towards fuel, maintenance and livelihood of the driver.
“I bought a new Hyundai Accent. It had been a year when I couldn’t pay the Rs 18,000 installment and a driver’s salary of Rs 15,000,” he said. “The financier seized the car. I had bought it against all my gold and lost Rs 2 lakh in 2017. Now, I drive a used car.”
Driver incentives fell from 62 percent of Ola’s gross book value to 17 percent over the last year, according to a report by RedSeer Consulting. Monthly income of a driver declined steadily while the number of work hours rose, triggering the backlash.
Mohan Kamde started driving Ola and Uber cabs three months ago. “For 16 hours a day, we earn Rs 1,000. But we can’t drive that much daily. We should earn that in 12 hours.”
Competition plays a big part and customers are spoilt for choice. Ola has expanded to 100 cities and Uber is present in 31. They offer competitive rates to hold on to their market shares.
“If you catch an auto from Malad to Andheri (in suburban Mumbai), it takes Rs 150,” said Kamde. “We drop a customer off in an air-conditioned car with convenience for just Rs 100. A driver takes Rs 70 home and that’s including diesel.”
An Uber spokesperson said in an emailed reply that business has “reached a tipping point in India, where sustained high demand from riders and drivers allows us to begin reducing higher levels of incentives for drivers and discounts for riders, to operate more efficiently”. Ola said a profitable business can’t be accomplished “without striking the right balance between sustainable demand for driver partners and affordable rides for customers”. In a nut shell, that’s how it’s going to be.
Drivers need to come to terms with the fact that it was a purple patch where the companies were scaling up, Rakesh Batra, partner and national leader—automotive, EY, said. “They need to recalibrate their expectations.”
Both Ola and Uber are also diversifying their business. Uber Eats, the U.S.-based company’s food delivery arm, has already entered India. Ola’s parent ANI Technologies Pvt. also acquired online food ordering platform Foodpanda in December.
“Their business model is evolving and changing. These companies have been around for a while. They are now increasingly seeking a path to profitability,” Tanwar of KPMG said. “What they are trying to do is optimise their expenses and rationalise their loss.”
To be sure, cab aggregators also own part of their fleet. Drivers who ply company-owned cabs are not complaining as they have no added costs of EMIs. Yet, most of the app-based cabs are owned by partners or entrepreneurs who drive themselves or hire people to ply multiple cars.
“Ola is keen on building its own fleet. Jobs migration due to this disruption will come back because someone has to drive those cars,” said Tanwar. “That will change the terms of employment.”
That’s no solace for those who already own cars. The challenge is because of the loans drivers took to buy vehicles, Batra of EY said. “Many of them are dumping the vehicles with financiers. They will not come back.”