DARE - Because Entrepreneurs Do

How big is the pie?

Future prospects
India’s urban population is currently around 30% of its total population. Experience across the world has been that as economies grow, rapid urbanization takes this proportion to over 60% before it begins to stabilize. Thus, it is projected that India’s urban population would grow to about 473 million in 2021 and 820 million by 2051, as against only 285 million in 2001.

Also going in favor of the business opportunities in this sector are the increasing levels of pollution, heavy traffic jams, scarcity of parking space etc. that plague the bigger Indian cities today. Add to this the galloping cost of fuel and there is likely to be a move towards public transport, away from personal transport.

“One way of making private players interested in this business model is first to give them enough subsidies and more importantly they should be allowed to ply their buses on more profitable corridors so that they have a fair ROI and the government should keep the less profitable ones”, says Dr. S K Singh of IIT Kanpur.

Challenges Untested waters
This is a new business model for India and as happened with Indore there will be several trials and errors in the quest for a perfect mix. According to industry insiders, some of the bus models originally chosen for Indore failed to meet requirements. This was apparently because buses meant for airport services were pressed on to harder city roads.

Multiple authorities
Transport is a heavily regulated area in the country and most investments into the sector has come from the central as well as the state governments. There are multiple agencies within each government overseeing the sector. One of the frequent complaints from participants in this field is that there is no cohesiveness amongst the various government departments and agencies in areas like road planning and maintenance, traffic control licensing, etc.

Increasing congestion on the roads
While increasing congestion on the roads may force government intervention to encourage public transport, left unchecked, it can also cause problems for the bus operator.

As per the Ministry of Urban Transport estimates, on an average, while the population of India’s six major metropolises increased by about 1.8 times during 1981 to 2001, the number of motor vehicles went up by over 6 times during the same period.

Uncertain business model
The highly regulated nature of the industry typically frightens the private sector from making big investments, while such projects depend on private sector participation and involvement. For example, in Indore the entire investment of Rs. 50 crore made in ICTSL is done by the private operators.

“It took a lot of convincing from the government side to rope in the skills and the capital of the private world. When we initiated the process, private companies were reluctant to come as they were not sure of the business aspect of it but slowly and surely the confidence levels are rising,” Vivek remembers.

To become an operator of some size requires heavy upfront investments. To go back to the UP tender, putting into operation 4000 buses could mean a capital investment of about 1200 crores just for the buses!

But going by the looks of it, providing mobility to the public can become one of the largest businesses in private sector in the country.

There are more than 30 cities in India that have a population of more than a million and a study done by the World Bank recommended that these cities should have urban bus transport corporation that owns 30 percent of its own buses and contracts 70 percent of buses from private contractors and operators.

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