Taxi Companies in Bombay: an Episode in India’s Urban Transportation

The problem

The best thing that you can ask for, in getting around a city, is a comprehensive underground metro system, where a tube station is at worst 200m away from wherever you might be. There is no city in India that has this. While the Delhi Metro is very impressive, it is still not aiming to intensively criss-cross the city in this fashion (a walk of no more than 200m to the metro station from any point).

The next best thing you can ask for is: well functioning taxis. A good success story in India is the black/yellow taxis of Bombay. They are ubiquitous, can be hailed down on the fly, will charge you by the kilometre, and the meters are not grossly off. I am not aware of any other city in India where taxis work like this. But the quality of vehicles is atrocious, and the customer experience unsatisfactory.

Air-conditioned taxis were tried in Bombay but collapsed into the wrong equilibrium. Customers came to believe that the meters were tampered with, so there were few customers, so the only way to make ends meet for the provider was to tamper with the meters, and so on. Somehow, the law enforcement, which went into ensuring veracity of meters of the traditional black/yellow taxis, did not come about with the blue taxis.

The solution

So it was a big step forward when the Maharashtra government setup a policy framework for corporations to setup a fleet of taxis, as is found in most good cities outside India. These are high quality vehicles. The Transport Department of the Maharashtra government, through its RTOs and the Weights and Measures Department, takes responsibility for ensuring that the meters are not tampered (and this is easily verified by the corporations operating these fleets, thanks to GPS and GPRS). Access through call centres and the Internet makes it easy to call a cab. In addition, as the number of taxis per city builds up, it becomes feasible to just step out into the street and grab one.

The place where I noticed this change the most was at the domestic airport. As a traveler, an incoming flight would bring me to the Bombay airport. I would then walk to a dedicated bay which could hold two taxis at a time, and grab a Meru. This would take me anywhere, with metering by the kilometre, and no fuss. It was just great.

The collapse

This worked so well, it took away business from the traditional black/yellow taxis. There were bays for 20 traditional taxis and 2 Merus at the airport, but customers would line up for the Merus while the traditional taxis stood around without customers. Bombay unfortunately has a trade union of taxi owners. They created a ruckus about this, engaged in a little violence, and pressurised the local government and the airport. In a sensible market economy this should have been no issue. Violence should have been dealt with by the police. Meru’s services should have continued to make progress regardless of what the incumbent felt.

The authorities buckled and Meru was evicted from the airport. That is, the 2-bay which they had earlier been given was taken away. So the traveler could no longer step out of the plane, step out of the terminal and grab a Meru.

To me, these events symbolised the governance problems of India. Here you had a very nice new piece of infrastructure. The incumbent (black/yellow taxis) should have lost market share when the new technology came in, and that creative destruction was taking place just fine. But the incumbent then engaged in hooliganism. The forces of law and order did not work effectively in blocking small-scale violence at the street level. The authorities did not have the spine to think about what was best for the users of the airport. The rule of law was not strong enough for Meru to enforce its rights as a legitimate taxi operator authorised by the government – the 2-bay which had been promised to them was taken away. It was a black mark for the quality of governance in Bombay and in Maharashtra. A very nice initiative that had improved the airport lay in shambles.

I single out Bombay and Maharashtra here because Meru is also operating in a few other cities, and this kind of collapse did not come about in any of those cities.


In recent weeks, Meru has comprehensively solved this problem. Here are the steps that I went through a few days ago:

  1. As I was stepping out of the plane, I called 4422-4422
  2. At the menu, I punched 5: a hotkey which says that I have just come in at the domestic airport.
  3. The call centre employee asked me which airline I had come in from. I named the airline, and they then knew which terminal I was at.
  4. Immediately, the call centre employee said: “Your car is number 9152” and hung up.
  5. This call was at 00:27 and it lasted all of 37 seconds. (If you don’t have a cell phone, there are telephones inside the terminal where this call can be made).
  6. At 00:29 I got an SMS giving me details about the car.
  7. At 00:32 the driver called me and said he’s waiting for me.
  8. I stepped out of the terminal and the car was waiting to pick me up, alongside the private cars that had come to pick up other travelers.

It was a very impressive use of technology. Through this, in effect, Meru has comprehensively solved the problem of being denied the 2-bay where taxis would be waiting for customers. Through this, they have successfully routed past the impediment of the breakdown of law and order and contract enforcement in Bombay.

Not yet fully plugged in

These new facilities are not yet properly in place ubiquitously.

At the Delhi airport, the airport penalises users of Meru with a charge of Rs.80. The Meru arrangement there is not as frictionless as that in Bombay. And, they use the same rigid zone definitions of the traditional pre-paid taxis, which isn’t relevant in this new setting.

At the international airport in Bombay, there is no access to Meru.

So it seems that a lot has yet to be done to properly integrate good taxi services into urban transport.

What if India had a Hong Kong?

An alternate history that I find interesting is a scenario where, in 1947, the British kept one city in India – e.g. Surat. This is analogous to the British control of Hong Kong in China after the communist revolution.

Why is Surat interesting for such an analysis, and not Bombay? It sounds too implausible for free India to have tolerated colonial rule for Bombay. A solution like Hong Kong, Macao or Goa for a less important place is more plausible. The other reason why Surat is of interest is that before Shivaji sent the merchants of Surat scurrying to the safety of British-controlled Bombay, Surat was the commercial capital of the West Coast. So there is perhaps some natural geographical advantage of that location.

If the British had run Surat in the fashion that they did for Hong Kong, how might this have changed India’s trajectory? The analogy with Hong Kong is straightforward. In this scenario:

  • Surat would have become a place with a market economy, with strong public goods of law and order, judiciary and legal system.
  • When India embarked on socialism, this would have been a place for people and capital to go to. Some of the brain drain and capital drain that India suffered to locations all over the world would have instead gone to Surat.
  • Surat would have then become a key mechanism for India to plug into globalisation, for trade in goods and services and for financial services.
  • When India started stepping out of socialism, a good deal of institutional capability, human capital and financial capital would have been ready at hand to help get the mainland going again.
  • When a country wants to undertake institutional reform, it is quite useful to have `regional role models’ (a term drawn from the World Bank’s East Asian Miracle book). India unfortunately has few regional role models other than the good work done in Sri Lanka on trade liberalisation before the war, and the work done in Bangladesh in microfinance; this is in contrast to East Asia where each country is able to pick and choose from regional success stories in any area of reform. If Surat had been a Hong Kong, then institutional arrangements there would have been a natural starting point for thinking about legal, regulatory and institutional development in India. This would have given faster institutional evolution and thus growth in India, once India wanted to actually do institutional reform.
  • The last point is a bit speculative. Suppose Surat was a vibrant outpost of good institutions and laissez faire, while India was headed off into a bad institutions and dirigisme from the late 1950s onwards. Would the very existence of a visible alternative have modified India’s trajectory? It is easy to think that from the early 1990s, when India was getting interested in reintegrating into the world economy, and in building institutions, that a Hong Kong would have helped. But look back even before that; would India’s long descent have been reduced or even averted by having a counterpoint? We know that in the Chinese case, they had Hong Kong and still suffered from the disasters of the cultural revolution. But in a functioning democracy with freedom of speech, the power of ideas and impact of information is greater.

In summary, if you think that China’s incredible economic success was aided by having laissez-faire Hong Kong handy, then in this alternate history, a similar evolution for Surat would have helped India.

I recently came across similar arguments being made by Paul Romer. He uses the term `Bridge Cities’ for such cities, which can help speed up the development of the host country.

Join the forum discussion on this post - (3) Posts

The Bloated Private Sector

The great insight of modern economics is the power of markets to align the interest of society and the individual. The idea that attending to your own affairs and following your passions is all that one must contribute to society is incredibly liberating. The market system has proven an incredibly powerful, efficient and innovate tool for distributing societies resources.

But it is time that we recognize that markets are not omniscient, they are merely a tool. The invisible hand does not free us from the obligation to actively create the society that we want. There are many well documented limitation to the power of markets. There is a vast array of goods and services that markets provide better and cheaper than any other system.

But there is an equally important set of goods that are incompatible with a market system. A healthy society must find a balance between the market economy and the need for public goods. Blind faith in the superiority of private investment over public investment has skewed this balance.

I was recently watching a Seinfeld rerun and it made me realize how rapidly technology has changed day to day life. The past 15 years has seen the near universal proliferation of the internet, cell phones and a host of other innovations that have fundamentally rearranged the way that people relate to their world. Yet the achievements of the technology sector underscore the societal failure in other areas.

Over the span of a generation we have built multiple nationwide cell phone networks yet allowed our transportation infrastructure disintegrate into the laughingstock of the developed world. While the internet blossomed into the greatest conduit of information in human history we have failed to provide a depressingly large percentage of our population with an adequate education. While drug makers have cured impotency and perfected the face transplant we have raised a generation of young people that is unlikely to outlive their parents.

The brightest minds of our generation have viewed trading derivatives on wall street or developing new gadgets in Silicon Valley as valuable contributions to economic growth. While government work has been the domain of the lazy or untalented. But in the enthusiasm for private investment the central signal of a capitalist economy has been ignored.

Prices are the brains of any market; by indicating what is needed price signals lead the way for investment. So what have prices been telling us? Over the past 15 years the profit margins of consumer goods from computers to clothing to fast food have been declining. At the same time public and semi-public goods have been kicking and screaming for more investment.  It is clear that the bloated private sector has been starving the public sector of essential resources.  Once we stop pretending that the private sector is morally superior to the public sector we will better be able to allocate resources between market goods and public goods.