Uber Economy in India

15 November 2019

I have wanted to write about this subject for a while. The primary inertia in these kinds of bits comes from the effort to link references which give the reader enough background before I put my simple point. Lucky for me, less than 24 hours ago, New Jersey imposed a fine of $649 million on Uber for treating drivers as independent contractors as opposed to counting them as its employees. This NYT article sums up the necessary background pretty well.

The issue, in summary, is that Uber treats its drivers as independent businesses. Uber’s role is to connect them to their customers. In other words, your business model is a platform to connect buyers to sellers, much like Amazon or Alibaba. The service being sold here is ride-sharing. As Uber would claim, this is different than being a business where you employ drivers to taxi people in return for money. There are plenty of reasons for this. The tangible assets (cars) of the company’s operations are not owned by Uber. The hours of work are not determined by Uber. However, there are counterarguments.

Uber is the primary source of income for most of their drivers. Hence, from their perspective, for all practical purposes, Uber is their employer and owes them employment benefits. These include unemployment insurance and minimum wage guarantee. The NJ Department of Labor and Workforce Development used such arguments for their judgement. I am not in a position to agree or disagree with this. Instead, I find the locality of arguments interesting. Uber being the primary source of income for few is not entirely caused by the existence of Uber but is an outcome of many other facets of the economy and is not a predictable result.

Let us look at India in contrast. You have Ola, a homebred ride-sharing service which has the same if not higher the market share to Uber. Both Ola and Uber also have three-wheeler auto-rickshaw services available in major cities. These used to be the traditional form of public transport in most cities, often overpriced, and they brought along the joy of haggling. Uber/Ola set their prices based on their perception of supply/demand. Their price for an auto-rickshaw service is immensely lower than what you can bargain for directly with the driver. I would argue that is good value added to society. So in some sense, their presence got us a full circle into disciplining auto-rickshaws which public outcry could not. Just the presence of an alternative pushes auto-rickshaws not to overprice their services. But this is not all.

The competition of Ola/Uber makes this better. Most drivers, auto-rickshaw or car, have both Ola and Uber apps and would switch based on whatever is working better for them economically at the time of day. They decide to cancel the rides if the destination and price are not suitable to them. If one of them tries to penalise this behaviour, they can immediately switch to the other app. It forces an unfavourable equilibrium for the rider. If all passengers are using the other app, your chances of getting a ride are higher with that service. This is in addition to the risk of being cancelled if the driver does not like your destination. This is an even better game for autos. They can simply not use the app and quote their own prices when that is more favourable to them. These are real scenarios, e.g. late at night outside a club. You really need a ride home, and you’re simply not in a mood to argue.

This…I don’t know…seems more like an ecosystem with independent businesses rather than employees. A lot of car drivers are employed with small companies which lend commute services to IT firms, such as MoveInSync and RouteMatic. These commute trips earn them more than Uber/Ola would, but they don’t have to or get to make these trips all day. For the remaining time, they can switch on their favourite app and score some rides.

That’s all folks! Gotta catch my Uber to work now!