Thursday, May 19, 2016

Designing taxi regulations for the 21st century

App-based aggregators are disrupting the transportation business world-wide. Existing regulatory and policy frameworks were not designed for this new reality. This has resulted in some knee-jerk reactions globally to do something. 

Nearer home, this is exemplified by Delhi Government. On May 1, the State Chief Minister had tweeted a fresh warning after Uber resumed surge pricing: “…Surge not allowed under law. They are warned that strong action will be taken against them”. This was a replay of April 18; when the CM had threatened permit cancellation and impounding of taxis that charged fares beyond the government rates. US based Uber and homegrown Ola had then suspended surge pricing.

The tweet led ban is an example of rule of law being compromised. The State implicitly allows a gap between policies and accepted market practice. The government has let the aggregator market take shape under this incompatible legal regime instead of acknowledging the new technology by issuing new rules. This displeased neither the entrenched incumbents (fixed fare auto and taxis) nor the disruptors (Ola and Uber) – a stable equilibrium.

Depending on the political situation, the regulatory muddle allows the governments to either stay mum or wash its hands off and claim that this new market was always illegal. This attitude increases the cost of doing business and the State gets stuck in a stable low-level equilibrium.

Politicians and bureaucrats tend to miss the fundamental reason for regulation: Government should intervene to address market failures - when the competitive market outcomes are not satisfactory for the society as a whole.

Realising the policy gaps, the Indian central government has now constituted a Committee to prepare a policy framework for taxi and other transport operators.

Pratik Dutta & I have an article in Business Standard (May 18, 2016) discussing how should policy makers think about taxi regulation? What are the market failures? 

Wednesday, May 11, 2016

Case Summary: NCDRC order against Jaypee Group

The National Consumer Dispute Redressal Commission (NCDRC) has in record five months ordered Jaypee Group to compensate home buyers for delay in construction. The case summary is discussed below.

The gist of the order dated May 2, 2016 is:

1. Give possession within 3 months. After that pay penalty @ Rs 5000 per day.
2. Pay delayed interest @ 12% on total amount paid by the consumer (from the original proposed allotment date to actual handover).
3. Taking money separately for parking was illegal. Refund any such amount with 12% interest.
4. Pay litigation cost @ Rs. 50,000 per complainant.

Read  the complete order: Consumer Case NO. 1479 of 2015

In the above case, the buyers of Kalypso Court apartments were promised delivery of homes in less than four years but only the structure was completed after eight years.

It is interesting to read Jaypee's defence at the NCDRC:

1. Delay has been beyond the control of the Company: (a) There was shortage of labor, scarcity of water, restrictions in excavations etc., which continued to exist for a period of 3-4 years, (b) In view of the environment order by the National Green Tribunal (NGT), the relevant authorities have been restrained granting Completion Certificates to the OP herein, since 28.10.2013.

2. Increase in saleable area at a later date was justified: After construction, upon measurement, it was realised that the area of the subject matter apartment had increased due to functional engineering necessities.

3. Fair terms: There is a provision for damages in case of delay @ Rs.10/- per sq.ft., per super area of said premises. The allottee had option to cancel the allotment.

4. The home buyers might be investors and not consumers so they should not be heard at NCDRC. This they did by asking buyers to prove that they did not purchase any other home.

On the question of delay, NCDRC noted: "This is an indisputable fact that no stay was granted by the National Green Tribunal at any time.  The complainant has raised much ado about nothing.  There was no rub in constructing the houses/flats. The OP (Jaypee) has failed to bolster its case with any kind of evidence.  It should have produced solid and unflappable evidence to show that there was shortage of labour, scarcity of water, restrictions in excavations, etc." OP refers to Opposing Party i.e. Jaypee Group in the order.

NCDRC did find some force in Jaypee's plea on increase in the area. However, this contention was rejected when it noted: "Although,  the internal area has not  been changed, even by an inch, yet, the OP (Jaypee) is claiming that the super area of the apartments has increased on account of increase in common areas,  a consequence of which, would be a financial  burden on Home Buyers...If there is any increase in the internal area, the OP (Jaypee) is entitled to get the additional amount, that too, at the rate fixed at the time of booking.  However, no such proof has been produced on record.   Consequently, we hereby hold that the OP is not entitled to any additional amount."

On the issue of parking charges, NCDRC relied on the Supreme Court judgement in Nahalchand Laloochand Private Limited Vs. Panchali Co-operative Housing Society Ltd (Civil Appeal No. 2544 of 2010) and reiterated that the promoter has no right to sell `stilt parking spaces' as these are neither `flat' nor appurtenant or attachment to a `flat'. Therefore, it rejected its claim to charge separate cost for parking.

As regards fairness of terms, the NCDRC noted that while the builder was charging interest @ 18% for any delay from the buyer, it provided for a token payment if the delay was from its side.

One the last point above, NCDRC noted:"...The OP (Jaypee Group) has made a vain attempt to make bricks without straw..."

NCDRC rejected all the allegations of Jaypee Group. It noted that the story advanced by Jaypee Group did not stack up.

NCDRC had passed an order on similar lines (Consumer Case NO. 427 of 2014) against Unitech, another defaulting builder, in 2015.

It is not at all expensive to approach the NCDRC. You don't even need to hire a lawyer though it might be a good idea to have one on your side. With the above judgement already in place, getting a similar order might not even take five months.

One can approach the NCDRC if the claim is over Rs. 1 crore. NCDRC's above order reiterates that consumers can combine and file cases together and each individual consumer need not have a claim of this limit.

It noted: "as per Section 2(1) (c) of the C.P. Act, 1986, which lays down that “one or more
consumers, where there are numerous consumers, having the same interest, with
the permission of the District Forum, on behalf of, or for the benefit of, all consumers, so

There are thousands of buyers who are stuck with Jaypee for 5-10 years.  Many other face similar predicament with their builders. Only 10 buyers came together to file the above case. It is high time more buyers rolled up their sleeves and took the first real step to a fair deal. Lack of regulatory oversight and enforcement has resulted in this situation.

Builders are betting that they can get away with huge delays and non-delivery of homes after taking bulk of the money from buyers. This needs to change.

Thursday, March 17, 2016

Why are we stuck with India Post?

People in large cities no longer need to depend on India Post except for sending occasional package/ letter to some small town, official work (Speed Post) or where official proof of delivery is needed (Registered Post). 

City folks would get stuck occasionally, like me, when they order something from US using USPS, or any other shipping where India Post is expect to bring the package home. Here is a quick guide I wrote on what a consumer should expect and do in the above case. This perhaps helps highlight one example of the postal mess. It is possible to avoid getting stuck in such cases by opting for Fedex or DHL, which though expensive, handle the customs efficiently and deliver faster.

Most city folks might therefore, generally, not feel stuck with or without India Post.

However,  larger India depends on it

India Post is an important institution. It helps connect India with its 155,000 branches. It has rolled out core banking solution in 20,000 branches. It is India's largest core banking network. In comparison, State Bank of India has about 13,000 branches. India Post disbursed Rs 11,400 crore through 6.4 crore MGNREGA accounts in 2013-14.

The fact that the concept of customer service is still largely alien outside of big cities also helps. We are elated if we are not asked for a bribe. It is expected for government run agencies to not pick up the phone or disconnect while the consumer is still explaining the problem.

Peek into the puzzling problem

In 2012-13 and 2013-14, the annual report shows the deficit to be around Rs 5,500 crore for each of these years. City folks too should bother as their taxes fund these massive losses.

These losses are more than the budget of India's space program for the corresponding years. We could potentially double ISRO's budget if this loss did not exist. While the space budget now stands increased to Rs 6000, the information on the revenue deficit of India Post for 2014-15 is not yet available. There is an annual report for 2014-15 on the website. This appears to be misleading as the data provided is one year old. It should actually be labelled as the annual report of 2013-14.

It is not just international shipping that is run in a sloppy manner. Out of 18 product lines listed as sources of revenue - the data for 2013-14 shows that India Posts makes losses on 15 of them. Of the remaining three, Book Post - Other Periodicals marginally exceeds the cost. Letter has a profit margin of 12 per cent. Only Competition Post Card shines with a profit margin of 35 per cent. Maybe, the simple Post Card needs to be subsidised and suffer losses but why nearly everything makes losses? Why does Speed Post make a loss of 41 per cent?

It is not to say that it is impossible for government agencies to do a decent job. ISRO too is government but it is generally regarded as cost efficient and high performing. Why is India Post not a patch on this?

New opportunities or worries?

Online retail is growing rapidly. This presents an opportunity for India Post in the larger India. India Post is now launching a Payments Bank which is expected to be operational by March 2017. What might give confidence that these opportunities would not turn loss making? Will India Post confine itself to delivery of government schemes to the poor?

India Post occupies large resources when it owns nearly 4500 buildings across the country and rents many others. It has a staff of 460,000 (March 2014), including 260,000 Gramin Dak Sevaks. It is inefficient and makes huge losses, year on year.

I am sure there must be ways to turn it around and a lot of things must have already been tried. Obviously, the results have not been as expected.

Should we not ask, why are we still stuck with India Post?

Ordered something using USPS - India Post? You should:

India Post's FPO near ITO, Delhi

1. Not expect timely delivery even though the package might reach India within three days.

2.  Not expect to find the helpline easily. The India Post website has reams on whom one can complain to -- but no details of customer care to get answers. For Delhi one may try 011-23233325. It took me 15-25 minutes just to connect. Their internet might be slow. If they say that there is no update on your package beyond a certain date -- request them to check if the page on their computer has loaded fully!

3. Most likely, expect delay at Customs. Do not try and contact them. No one will pick the phone. The India Post helpline will share their contact numbers, if asked. I got this email id from India Post for Customs in Delhi: fpocustoms[attherate] Did not get any response.

4. Track shipment on India Post site also. This might give some more details. My package was stuck at Customs and released after quite a delay. The reason posted on the website was "Others".

5. Know that, once the package is cleared from Customs, it will be sent to local post office corresponding to the pin code. If the package is bigger than what can be accommodated on the Postman's bicycle -- do not wait for them to deliver it. Just go and collect. Remember to carry the item tracking id, and sufficient money to pay the applicable customs duty. It might be useful to also carry a copy of invoice. I was not asked for this but then who knows. Here is one link you can use to estimate the customs duty.

6. Be able to locate the phone number of local post office. This will most likely be the number where they take bookings and not handle delivery. So one may skip this step and save time.

7. At the first point when one realises that things are getting delayed, ask the seller to initiate an inquiry from the international shipping agency like the USPS. Later, one could use the same process to initiate insurance claim process, if needed.  No point in being irritated with the seller as (in most cases) the problem is Indian Customs and India Post.