Why in News?

India’s $1-billion ride-hailing market is undergoing major disruption. BluSmart, a leading electric cab service, has paused operations amid regulatory scrutiny of its associate firm, raising concerns about the future of its 8,000 EVs.

Meanwhile, rivals like Rapido and Namma Yatri are challenging Uber and Ola by ditching commission-based models in favor of driver-friendly daily subscriptions. This shift is reshaping the industry but also raising legal questions, especially around GST applicability.

Adding to the churn, the Karnataka High Court has ordered bike taxi services to shut down by mid-May, potentially influencing other states.

What’s in Today’s Article?

• BluSmart's Uncertain Future: Key Developments
• Winners from BluSmart’s Exit
• Legal Hurdles Facing India’s Ride-Hailing Sector
• Growth Potential Amid Legal Uncertainty

BluSmart's Uncertain Future: Key Developments

• BluSmart has halted services in Delhi-NCR, Bengaluru, and Mumbai.
• Customers have been told it could take up to 90 days to refund their in-app wallet balances, raising concerns amid the company’s financial troubles.
• Liquidity Crunch Deepens
  • Ratings agency ICRA flagged debt servicing delays and confirmed BluSmart is loss-making.
  • The suspension of operations is expected to worsen its liquidity crisis.
• Gensol’s Loan Defaults Impacting Fleet
  • Gensol Engineering, promoted by BluSmart’s founders, is in default on EV procurement loans from IREDA and PFC.
  • Since the vehicles were kept as security for the loans, the lenders can now take back the vehicles and sell them to recover their money.
• Complications in Vehicle Ownership
  • While some EVs were sourced via BluSmart’s “Assured” leasing programme, the majority are leased from Gensol.
  • This creates ownership uncertainties, complicating any potential fleet partnerships with companies like Uber.
• Deal with Refex Falls Through
  • A proposed sale of 3,000 EVs to Refex Green Mobility has not materialised.
  • With SEBI now probing Gensol for financial misconduct, future transactions may also be stalled.
• Bottom Line
  • BluSmart’s operational pause, combined with mounting financial and legal troubles, has cast serious doubt on its revival and potential asset monetisation.

Winners from BluSmart’s Exit

• Uber and Ola Could Regain Market Share
  • With BluSmart out, giants like Uber and Ola may attract more users—but competition remains stiff.
• New Players Enter the Scene
  • Startups like Shoffr, now active in Delhi, are gaining popularity, especially for airport transfers, thanks to better service and reliability.
• Subscription-Based Models Gain Ground
  • Rapido and Namma Yatri, with their driver-friendly daily or weekly subscription fees, are attracting more auto and cab drivers, challenging the commission-heavy models of Uber and Ola.
• Pressure Mounts on Uber and Ola
  • These challengers have already forced Uber and Ola to adopt subscription pricing for autos.
  • A similar move for cabs may follow, though replacing commission revenue with flat fees poses a challenge.
• BluSmart’s exit creates space for growth, but the winners will be those who adapt quickly to changing driver preferences and pricing models.

Legal Hurdles Facing India’s Ride-Hailing Sector

• GST Confusion Over Subscription Model
  • Platforms using the subscription model don’t collect the 5% GST from passengers, as drivers receive payments directly.
  • However, the legality of this remains uncertain, with conflicting rulings:
    • Karnataka AAR (Authority for Advance Rulings) (Nov 2024): Held Uber must collect GST under the subscription model.
    • Earlier Ruling (Sep 2023): Exempted Namma Yatri, stating it only connects drivers and riders.
  • The industry is now seeking clarity from tax authorities on GST rules for subscription-based ride aggregators.
• Crackdown on Bike Taxis
  • The Karnataka High Court has ordered all bike taxi services in the state to stop by mid-May due to a lack of regulations.
  • This has affected thousands, including women drivers who have petitioned the government to:
    • Provide temporary permits
    • Establish a clear regulatory framework
    • Hold consultations with stakeholders
• Call for Policy Reform
  • The Internet and Mobile Association of India (IAMAI) has urged the government to form a joint committee to draft bike taxi guidelines.

Growth Potential Amid Legal Uncertainty

• Despite regulatory issues, the ride-hailing market in India is expected to grow from $951 million in 2023–24 to nearly $4 billion by 2031–32, at a CAGR of over 18%.
• India’s ride-hailing sector is growing fast, but tax ambiguity and lack of regulation—especially for subscription-based models and bike taxis—pose significant legal challenges that need urgent policy attention.