The License-Permit Raj Strikes Again - ISPP The License-Permit Raj Strikes Again | Indian School of Public Policy Humane ClubMade with Humane Club
table of contents

The License-Permit Raj Strikes Again

The License Permit Raj Strikes Again Thumb 500x281

Long ago, I came across one of the many sharp takes on India’s license permit raj history by the erudite economist and columnist Swaminathan Aiyar. He claimed that India got rid of the license raj in 1991, but the permit raj continues to haunt us. More than three decades since we did away with the license raj, the ghosts of the dreaded duo are resurrected by the Indian state to haunt us time and again.

This tirade has been triggered by the recent diktat of the Transport Department of the Delhi government which ordered the bike taxi service aggregators like Ola, Rapido, Uber, among others, to suspend their two-wheeler services in the National Capital Region. Years after they kicked off, it seems the Delhi Government suddenly woke up from its deep slumber on the fine spring morning of 20 February and realized that the commercial services provided by these bike taxis with private registrations violated the Motor Vehicles Act of 1988. The diktat has threatened fines of Rs. 5,000 for first-time offenders and Rs. 10,000 for subsequent offenders. If this wasn’t enough, the poor rider could have his driving license suspended for at least three months or face imprisonment of up to 1 year.

Such a precedent was set up by the Maharashtra Government and the Bombay High Court when they threatened the aggregator platform, Rapido, to halt its services or face permanent suspension of its license. In the words of the milords of the High Court, “If you (Rapido) make one mistake, we will dismiss this petition. We will ensure that you are restrained from getting a license permanently, and we will impose costs while dismissing this petition.”

The rationale for the gag given by the Transport commissioner, Ashish Kundra is “The decision has been taken from in view of the safety of passengers, especially women…” and that in “In case of accident or crime, we will not have the antecedent of the drivers.” However, such arguments do not seem convincing. The aggregator apps have grievance redressal mechanisms for the safety of their riders. Rides are either pre-insured for accidents or the rider can opt for them before availing the service. Moreover, the captains or drivers are required to register on the app with all their relevant details. Therefore, the government can access data on accidents or crimes by contacting aggregator platforms.

The Indian regulatory landscape is no stranger to such abrupt decrees. Notices for blanket bans on services or products involving several stakeholders are arbitrarily announced on an ill-maintained government website or a hurried press conference. With the onset of social media, such decisions are now announced by ministers and officials on their Twitter handles. Alas, only if the feudal mindset of our government babus and ministers evolved like our technologies!

These abrupt notices are nothing but the exercise of unchecked power by unaccountable officials of an arbitrary executive. The consequences are faced by the unsuspecting stakeholders who have little to no say in decisions that affect them disproportionately. It seems there were no stakeholder consultation meetings before arriving at such a consequential decision.

The most important stakeholders are the poor drivers who can barely eke out a living. After the disastrous rout of informal jobs caused by the pandemic, many of these unemployed boys and men registered themselves on food delivery, e-commerce and ride-sharing service apps. As the notice came into effect, many who left their homes in the morning as honest, hard-working men found themselves as violators of law they had no clue about. Now they pray that they are not stopped at the traffic signals. Unlike unions of taxi and auto drivers, two-wheeler drivers are unorganized and have no unions of their own that can articulate their interests.

The decree is also a jolt to the thousands of people who hail the two-wheeler services in the NCR. They cost half of a four-wheeler service for the same distance. With the ban, citizens will be deprived of an economical and quicker means of intra-city travel. Any policy that impinges upon people’s ability to exercise a harmless consumption choice violates their economic freedom.

Last year, several Delhi government ministers created quite the noise as Delhi overcame Bengaluru to become India’s startup capital. The Delhi Startup Policy aims to make Delhi the world’s startup capital and home to businesses and unicorns. It provides all the incentives and support that a startup ecosystem might need. Unfortunately, while focusing on what a robust startup ecosystem needs, the government seems to have ignored what it absolutely does not need. And that is abrupt gag orders on the popular services of a startup company, threatening them with license suspension and hefty fines for non-concurrence. Short-sighted policies will have a chilling effect on upcoming entrepreneurs and hinder the realisation of the lofty objectives of the state government’s startup policy.

One of the explanations behind the decision could be that the state government was losing out on significant tax revenues as commercial transport licenses fetch more than private licenses. The desire to permit services only under a commercial license reveals the government’s true intentions.

The draft aggregator policy of the state government is currently in the works and will be released soon. The government is thinking of legalising bike taxis if they are EVs. While such a decision might be aimed at improving the share of EVs on Delhi’s roads, it will greatly impact the riders who already operate on thin profit margins. Forcing them to shift to EVs without a robust EV infrastructure might negatively disrupt the bike taxi business.

Even if the government’s objections are considered justified, fewer absolute alternatives could have been employed. The government could have engaged in stakeholder consultation with the aggregator platforms and given them a feasible deadline to make the necessary changes congruent with the law. Section 72 and 73 of the Motor Vehicles Act, 1988 permits the state transport authorities to issue taxi permits to all vehicles, including two-wheelers. The Delhi Transport Authority could have initiated a programme for bike taxi drivers to convert their private licenses into commercial licenses and continue with their livelihoods. This would have minimised the disruption.

While the 1991 reforms killed off the license permit raj, their ghosts still linger on. The Indian state placed its faith and surrendered its power to the invisible hand of the market in determining the prosperity of both consumers and providers. However, abrupt diktats like these betray their intentions. These also reflect a need for more institutional checks and balances on the arbitrary use of powers by the Executive. Prohibitory policies with widespread impact should only be allowed to go through after widespread consultation with the relevant stakeholders. We still have a long way to go before we can completely come out of the shadow of the license permit raj. Until then, we must be prepared for such occasional jump scares.