Vijay Kumar Gaba: Ola

Wednesday, January 11, 2023

An ethical dilemma

It's less than two weeks into the new year and I have already faced multiple instances of ethical dilemma. These instances not only tested my resolve to avoid all kinds of ethical conflicts, but also raised doubts about the health of the Indian economy and sustainability of some new age business models.

Let me first briefly describe some of these instances:

· I booked a doctor consultation for my daughter through a popular healthcare service portal. The doctor insisted that in future we should book consultation directly with the clinic instead of coming through the portal.

· I lodged a service request for our out of warranty washing machine with the concerned German Appliance company. The service engineer visited within 3hrs and repaired the fault. While leaving he handed over his private business card and requested that in future we can call him directly; and he will charge only 50% of what the company charges for a service visit.

· My wife booked a hairdresser visit from an aggregator. A young girl visited our home and did the job, While leaving she told my wife to note his personal mobile number. She said, “You can book an appointment through WhatsApp directly. It will cost you 40% less than the booking made through the aggregator.

· I booked a cab for 8hrs through an aggregator for visiting a couple of places in NCR. The driver happened to be living within 2kms of my residence. After we completed the trip, he made an offer to me, “if you need to book a taxi for longer trips, you can call me directly and I will charge you a flat Rs15/km, instead of Rs23/km you have paid today.

In all these instances, the concerned service provider mentioned that “everyone” does this. The hairdresser girl and taxi driver referred by the respective aggregators Company and Service Engineer from German company even cited some of my neighbours who have availed their offers.

All these instances obviously involve a breach of contract as well as ethical impropriety. The dilemma however is that this gives me satisfaction of helping a service provider who is being apparently exploited by the aggregator; besides of course saving me money and some effort also.

If I overcome this ethical dilemma with the argument of “exploitation of poor service provider” and decide to engage with these service providers directly, then I would need to find answers to even more pertinent questions. For example—

(a) Is the business model of most of these aggregators sustainable at all?

(b) If doctors and engineers do not care about business ethics and the sanctity of contractual obligations, how could India dream of becoming a developed economy?

(c) If the lower middle class service providers and middle class service users are both stressed enough to bypass ethics for some monetary savings, is the consumption growth story of India actually believable?

Thursday, September 12, 2019

The seeds of auto slowdown were sown much earlier

Conventionally, automobile industry performance is widely accepted as a lead indicator of the overall economic performance of any economy. No wonders if the recent slowdown in automobile demand is being represented as a mark of the slowdown in overall economic activity.

However, the reactions from policy makers - ministers, MPs, senior advisers & bureaucrats, etc - are perplexing.

They have mostly sought to trivialize the issue of slowdown either by outright rejection or some lame explanation. The suggestion of the finance minister that use of app based taxis may be a key reason for slowdown in demand of automobile has been criticized widely on social media as a completely illogical. These unmindful assertions from the official side have raised doubts over the policy makers' understanding of the current state of Indian economy. These doubts may impact the already faltering business and consumer sentiments.

In this context it is important to note that—

(a) The GDP growth rate in India peaked at 9.6% in FY07. Since then, the popular target growth rate of 8% has been achieved only twice inFY11 and FY17.

(b) The monthly growth rate in sales of automobiles in India had peaked in 2010 at around 60% yoy. Since then it has ranged between -10% to 20% with a declining tendency.

(d) The share of private consumption in India's GDP consistently declined since 2000, from a peak of 70% to below 60%. Since 2012, it has mostly ranged between 57-60% of GDP.

(e) The fall in private consumption has distinctly coincided with the rise in household debt that has risen consistently from 2% of GDP in 1998 to over 10% of GDP in 2019.

(f) In past 25yrs, since 1995, India’s economy has grown at an average rate of 6.8%. However, the total employment in economy during this period has grown at just 0.3% CAGR. Moreover, the real wages have grown at significantly lower rate than the economic growth. The anecdotal evidence suggests that the real wages in private sector may be mostly stagnant for past 3 years. The affordability quotient of household is obviously lower.

(g) Post GST implementation, the operating efficiency of truck fleet has reportedly improved materially. Some unconfirmed reports have suggested that pre GST a truck took 10-12 days to make Chennai to Mumbai round trip. With implementation of GST and removal of check posts on state borders, the same round trip takes 4-5. So a lorry that was making two trips up & down in a month is now making 6 trips. The demand for trucks is obviously impacted. Improvement in railways is also reflecting on CV demand. The full operationalization of dedicated freight corridors will further impact the CV demand.

Restrictions on mining, slowdown in demand from housing construction sector, slowdown in imports, and delay in purchase decisions due to BS6 implementation schedule, etc also reflect on slowdown in CV sales.

(h) Moreover, the slowdown in auto sales is not a India specific phenomenon. Its more of a global trend. As per a Forbes report-

"The world car market is about to take its biggest hit since the financial crisis of 2008, according to a report from Germany’s Center for Automotive Research (CAR), with sales diving more than 4 million in 2019.

The fall, triggered by U.S. sanctions policy and led by a huge fall in China’s sales, will extend over four years and be exacerbated by harsher CO2 regulations and the challenges this implies from the enforced take up of electric vehicles in Europe.

The forecast, authored by CAR’s director Professor Ferdinand Dudenhoeffer, doesn’t include the impact from a possible crisis when Britain leaves the European Union (EU), or if the U.S. imposes tariffs on European vehicle imports.

Dudenhoeffer said world sales in 2019 will fall to 79.5 million from 83.7 million last year, and won’t recover to 2018’s levels until 2022 when sales will rise back to 84 million." (see here)

Ola and Uber are obviously the last things to impact the demand of personal vehicles. It may be worthwhile to note that only 30-35% of India is urbanized and Ola & Uber so far address about 30% of this urbanized India.

Shortage of parking space in cities and spread of Metro network might impact the growth of automobile sales more than Ola and Uber.