Tuesday, March 9, 2010

Economics behind AutoFares

Intention of this post is to compare the auto fares between Chennai & Bangalore and try to analyze the reason for huge deviation seen among them.

I have stayed in both these cities for a fairly long period, 6 years in chennai and 3 years in Bangalore. To my experience traveling by auto is nightmare in chennai,even for localites. Bargain for a distance of say 7 KM used to start at Rs100.We can do nothing but wonder their negotiating capabilities.They quote without fail petrol price hikes ( however old it might be) ,increase in traffic etc and finally make us accept to about Rs80-90 for it.Comparatively in Bangalore you could get a ride for Rs7 per km ( ie Rs49 for 7km).Its even more pathetic for non tamil speakers and floating population who are not aware of city's roadmap.In these cases rates are easily double /triple of the above mentioned ones.

Recently during my visit to chennai, i was happy to see a prepaid auto kiosk operated by metropolitan authorities at koyembedu busstand.But on a closer look at the chart,i was shocked.List of places, its distance(in KM) and prepaid charge were mentioned there. Charge were in a multiple of Rs10.5 per KM.Compare this with Rs7 per KM in Bangalore.
Officially Auto travel is 50% costlier in chennai than Bangalore !!!

Surprisingly all the reason quoted for high auto fares in chennai also holds good in Bangalore . To name a few
1. Same petrol /diesel price
2. Similar cost of living ( Bangalore should be costlier infact )
3. Chaotic traffic.Infact if there is a rating for traffic chaos,surely Bangalore will top it ,with its huge no of one-ways.

So what makes a same profession 50% more lucrative in Chennai than in Bangalore ?

One reason i can think of is wider adoption of auto travel in Bangalore due to pathetic public transport and lack of metro railway.On the other hand Chennai is famous for its well networked bus service and metro rail.Recently Chennai metro was ranked among the World's 10 best commute by forbes magazine .So in chennai people resort to autos only in adverse case of emergency or have a fat purse to spend.This results in lesser no of trips for a auto driver and he is forced to quote high charges,to cover up the constant cost. Due to this abnormal rates people further avoid autos and it results in a vicious cycle affecting both the stakeholder.

Basically every business is associated with two costs. Fixed cost and incremental cost.Fixed cost remains constant irrespective of the no of units sold.In this case it should include driver bata ,interest on auto loan etc.Incremental cost is directly proportional to the number of units sold.Here its petrol charge.Eventually each business is left with two options drive up the sales while keeping the margins low ( BigBazzar, Saravana Stores etc) or be a unique vendor quoting premium charges.

Here comes the more serious question .In recent times public transport in Bangalore is rapidly getting better with induction of quality buses ,increase in the services and to major extent MetroRail which will be operational soon. So does it sound the end of days for better auto service in Bangalore ?

1 comment:

  1. good analysis..Despite this, we still dont mind to shell out money for autos!!