Taxi Troubles

taxi troublesIf there’s something that has been common across the urban streets of the world, it would sure have to be taxi troubles. From the joyous streets of New York to the bustling Melbourne corners to the chaotically maddening streets of Kathmandu—taxis have grabbed headlines many a times.

Like governments elsewhere around the world, the government of Nepal took it upon itself to correct the marketplace imperfection that would have been caused if private players were allowed to take over the taxi industry sans the much needed regulation. And hence, in May 2000 A.D., the government banned registration of new taxis in Kathmandu Valley. Prior to the halt, about 8,000 taxis were registered to run in Bagmati zone and this amounted to about 80% of the total taxis in the country. According to the most recent data from the Taxi Unit, Bureau of Standards and Meterology, 4,834 of these ply on the valley roads and these are over 15 years old. With quite a percentage of them being out of order and the existent ones being run down and battered over the decade, the halt on registration raises some serious issues.

For starters, the idea of restricting entry means that the interests of rent-seeking taxi industry incumbents were valued over taxi customers. Restricted entry meant that the cost of licenses went up (quite unnaturally) and few held those licenses for their own benefits in the shadows of this artificial shortage. Also, over the last decade, the population of the valley has gone up at unprecedented rates—people from all walks of life have been drawn to this epicenter of dreams, opportunities and possibilities. But with this growth, the number of taxis has only fallen down—the ones that remain are a witness to the wear and tear that comes over time of repeated usage. These reasons combined have led the customers to pay higher prices for services that do not meet the quality standards as they are left with no other choice—after all, an over paid ride in a battered taxi is better than having to walk back home after a long day at work.

Instead of letting the market forces be at play, the already regulated industry is further scrutinized by the government’s price control mechanisms. The government has a ready-made rationale behind it—taxis have been charging exorbitant rates from passengers and there have also been reports of tampering with the meters. So, on July 16th 2013, the government raised the fare by 15.6 percent. The meter starts from NRs. 14; the fare has been raised to NRs. 37 per kilometer from NRs. 32. In earlier years too government has been raising the taxi fares according to the rate of inflation, increasing fuel prices and changing wage rates for the drivers.

While the government tries to justify the regulation citing reasons as private players monopolizing the market and public safety, it is easy to understand how competitive taxi markets and unfettered entry and fares for taxi providers would mean lower fares, higher level of services to the customers and possibly service innovations. If nothing else, this would mean entrepreneurial opportunities for many interested. Because of their flexible services like 24 hour-a-day availability and capacity to provide door-to- door service taxis have become an added element of a modern-urban lifestyle and the regulations have not only restricted the much needed competition but have also killed whatever little incentive they might have had to innovate and provide better services at much cheaper rates.


Anita Krishnan

Krishnan holds dual degrees--in law and sociology. Currently, she works as a Research Associate at Samriddhi, The Prosperity Foundation.

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