The simple reason why Uber and Ola can’t deter Indians from owning cars

Where cars are worshipped.
Where cars are worshipped.
Image: Reuters/Anindito Mukherjee
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Travis Kalanick, founder and CEO of Uber, built his cab-hailing startup with one ambitious goal: to stop people from buying cars. And while his ultimate goal could well be achieved globally, India would remain an exception.

New research by Swiss investment bank UBS says that ride-on-demand (RoD) apps won’t stop Indians from buying their own cars. The main reason for this, according to UBS’s analysis, is that the cost of availing these services is similar to owning a car. Additionally the penetration of cars in India is still very low.

“For India, given the extremely low penetration of cars and their strong association with social status, we believe the risk of a negative impact on car ownership is low,” the report said. “Our analysis shows that RoD cost is similar to that of a self-owned car and slightly over half that of a chauffeur-driven car,” it added.

As the standard of living in India increases, rising disposable incomes will mean more takers for cars and scooters. On their part, carmakers are offering cheaper alternatives by way of small variants to fuel this demand. Additionally, cheap car loans are making it easy to finance these purchases. Between 2016 and 2020 India’s car-finance market is estimated to grow at a compounded annual growth rate of  13.5%.

Glory days are fading

Meanwhile, the phase of exponential growth for services like Uber and Ola is nearing an end in Asia’s third-largest economy, UBS says. Starting from the 2018 financial year, the demand for RoD services is expected to drop. UBS analysed 70 RoD apps and found that the annual growth in downloads in India has slowed from 290% in the 2016 fiscal to around 30% in the 2017 financial year.

While taxi hailing services would continue to gain momentum in metros and remain the most popular apps, tier II cities will see a moderate growth. The adoption of RoD services in tier II towns “will be more limited”, according to UBS, as roads are less congested and convenience issues aren’t as acute, which means people could easily use their own cars.

Uber and Ola are aggressively chasing Indian consumers who are increasingly resorting to RoD services because of their low cost and high convenience. In fact, for Uber, India is the fastest-growing market. But these companies are now also looking at profitability and viability of businesses. UBS’s analysis of Uber prices and interaction with drivers shows that there were fare increases across India in January this year. Additionally, Uber has also cut down incentives for drivers, UBS said. The past few months have seen protests and strikes by Uber and Ola drivers in the country, opposing low fares and inadequate facilities.