Ola wants government to stop ‘capital dumping’ by rivals

0
960

Though heavily funded by foreign investors like Japanese SoftBank Group, leading cab aggregator Ola has said government should bring in regulations to stop “capital dumping” which is distorting the market.

#DigitalErra Thought Corner

In an indirect reference, the chief executive of Ola, India’s biggest ride-hailing app, has attacked Uber over “predatory pricing”, warning its US-based rival to expect government intervention.

“There is an urgent need for adequate regulation to curb predatory pricing and capital dumping in the ecosystem in the interest of co-existence of all players in the ecosystem,” Ola’s Chief Operating Officer Pranay Jivrajka told PTI.

Foreign Funding In Ola

The recent comments also brings attention to Ola’s own funding where it has secured foreign capital worth over $1.2 billion from investors like SoftBank, DST Global, Accel Partners and Sequoia Capital, among other players. Juxtaposing the foreign funding stand, Jivrajka said Capital should be utilized for sustainability and not to offer disrupting pricing.

Ola Founder’s Backing

Ola’s founder Bhavish Aggarwal says they are engaging government into a comprehensive dialogue on the issue of ‘capital dumping’.

“The Indian government might be slow but it’s not blind and dumb, so the Indian government will also do that at some point,” Mr. Aggarwal said.

Recommendation To Maharashtra Government

Ola has made three recommendations to Maharashtra government. The most important of them is the need to review proposed high licence/permit fee of Rs. 2.61 lakh for vehicles of 1,400cc and above. It puts additional capital burden on heavy vehicle owners.

Ola’s Tussle With Uber

image-14Ola and Uber have been locked in battle since Uber’s entry to India in 2013. Over the past year both have repeatedly cut fares in big cities well below their cost of each ride, in the process where they saw a heavy cash-burn.

In March, Ola launched a new ride category where it offered rides in small cars for just Rs6 per kilometer, on top of a base fare. Such aggressive cuts were made to counter similar moves taken by Uber. In a veiled attack on Uber, Mr. Aggarwal said, “Dumping money into a country because you have profitable markets elsewhere is against [World Trade Organisation] principles.” Uber rejected his allegation, saying it “competes vigorously and fairly to attract drivers and riders to our platform”.

In June, Uber claimed to have captured about half the national market, a claim disputed by Ola, which refers to third-party analysis suggesting it enjoys a healthy lead.

India Co. Creates Lobby

Tired of being given ‘secondary treatment’, Indian startups have come together to form a lobby group to give consideration against the invasion of foreign businesses. Leading from the front is Flipkart’s Sachin Bansal and Ola’s Aggarwal. Other names expected to be a part of this group include Shashank ND of Practo, Girish Mathrubootham of Freshdesk and Vijay Shekhar Sharma of Paytm.

The move is taken to create a level playing field especially when the services and sectors overlap one another.

Conclusion

As per Business Standard, Uber has far more wealth in equity ($12.9 billion) compared to Ola which seems to be bleeding money thanks to the price war between the two. A ban on below-cost pricing would benefit Ola as it has done heavy investment in buying its own fleet of cars. In Mr. Aggarwal’s words, “India will be like the Vietnam War: Uber can throw all their money into carpet-bombing the country and it won’t get them anywhere.”

India’s demographic idiosyncrasies demand a lot more than heavy investment. It can be the case where Uber sold its Chinese business to rival Didi Chuxing on the face off Beijing’s new rules on pricing. India’s market is an open one and it’s still trying to attract global investment balancing and safeguarding local interests.

Banner