Will Indians start buying fewer cars?

Gridlock in India’s cities has reached dangerous proportions. The average speed of traffic going through the city centre in Bengaluru during peak hours was recently clocked at just 10 km per hour. Commute speeds in Mumbai and Delhi are often worse.

In the big Indian cities, two solutions — metro rail and taxis — are beginning to offer relief. As more people squeeze into metros, road traffic density under metro-elevated structures and on surrounding feeder roads appears to have fallen.

This makes sense. Many metro riders own private vehicles that are now off the roads, decongesting traffic along their entire route.

The problem is that not everyone in the big cities can travel by Metro. The sprawl in India’s cities is so vast that even when all future lines of current metro projects are operational, the majority of a city’s residents will be more than a mile from the nearest metro station. This last mile problem — of how to get to and from a metro station at both ends — is a serious one.

Which brings us to cars. Automobiles remain the best solution for all-weather end-to-end transportation but they are getting increasingly more expensive both to buy and maintain.

City driving is no longer pleasurable and driver anxiety is on the rise. Hiring chauffeurs is not a cost-effective option either. Families that hire drivers chafe at under-utilised chauffeurs and sometimes make unnecessary trips causing additional gridlock and burning needless fuel.

The answer may well be for consumers to not use private cars but rely extensively on taxi services, again like in the world’s big cities. A simple cost-benefit exercise can help make such a case.

To test this hypothesis out, I took ten Uber trips in Bengalaru over a two-week period, at different times during the day. Some were individual rides, others were pooled.

My average cost was 12.25 ₹/km. For simplicity, I disregarded the only other cost — internet fees to book and pay for travel.

Now, consider the case of two families both of which commute 2,000 km a month. One family owns two cars and employs a driver for each car; the other family exclusively uses taxis.

Assume the initial costs of the cars to be ₹6 lakh each and that both cars will be sold after 7 years, at zero residual value. Also, rather than calculate finance costs, let us compute the opportunity cost assuming that the family pays cash for both vehicles.

At 7 per cent interest per annum, a ₹12-lakh FD would yield ₹84,000 in interest, an opportunity cost of ₹7,000 per month. At an average operational cost of ₹8/km — fuel, maintenance, taxes and insurance — the 2,000 km of driving each month would cost the family ₹16,000. Factor in the two additional full-time drivers (₹24,000 a month) and the car-owning family will spend ₹47,000 in monthly transportation costs.

For the family that uses taxis, the monthly outlay would be just ₹24,500, a saving of 48 per cent over the car family.

Plus, it never needs to pay for parking. Improvements in app functionality and the deployment of thousands of taxis mean that cabs these days arrive at their pickup point often faster than the time it takes for a parked car to be driven out into the street.

Even if the car family doesn’t hire drivers, throwing the comparison off because taxis come with drivers, the car family spends ₹23,000 a month, only slightly less than the taxi family.

If Indians in the big cities slowly begin to think in this manner, they could begin to buy fewer new cars in the future. Families will continue to have their existing cars parked in garages but will start severely limiting their use, perhaps to pleasurable, long-distance drives or emergencies only.

This in turn would have serious consequences for India’s manufacturing and service economy. True, taxi companies will continue to encourage their drivers to buy new cars but this volume pales in comparison to domestic retail buying.

AP reported in early September that John Zimmer, co-founder of the ride-sharing company Lyft wrote in an essay that “personal car ownership in the US will come to an end because autonomous rides (self-driving Lyft cars) will become a cheaper way to travel than owning an automobile”.

With India’s vast labour pool and complex traffic patterns, self-driving cars are unlikely to make an entry on Indian roads anytime soon. But Zimmer’s prediction that personal car ownership will fall may turn out to be true in India as well.

The writer is MD of education consultancy Rao Advisors LLC

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