The economics of auto-rickshaws: What drives their crazy demand?

On Thursday (21 November), Dhaka came to a standstill once again. This time, it was the auto-rickshaw drivers who staged protests across the capital. 

It came in the aftermath of the High Court ordering a halt to battery-run auto-rickshaws on the streets of the Dhaka metropolitan area. The order was issued after hearing a writ petition on 19 November.

This is not the first time a ban has been imposed on auto-rickshaws. Despite several previous efforts by the two city corporations of Dhaka, these illegal three-wheelers have continued to dominate the streets.

The number of auto-rickshaws has increased significantly over the past few years, flooding not only Dhaka but also other parts of Bangladesh.

Today there are up to four million auto-rickshaws in the country.

What's behind this crazy demand? To answer this question, we have to understand the underlying economics of auto-rickshaws.

Less than 2% of registered vehicles in Bangladesh are public transport, like buses and minibuses. The gap between demand and supply of public transport is behind the boom of these unsafe three-wheelers.

Infographic: TBS

Meanwhile, keeping pace with inflation, the fares of traditional pedal rickshaws have also skyrocketed accordingly. Hence, people often opt for auto-rickshaws, as they are available at lower fares. 

In economics, it is called the substitution effect — consumers switching to cheaper options.

As a result, it has put pedal rickshaw pullers in tough competition. Many of them have even switched to motorised auto-rickshaws by installing batteries.

Back in 2004, fully assembled auto-rickshaws were imported from China, but they are now locally assembled. In most cases, regular pedal rickshaws are simply fitted with imported batteries.

The manufacturing cost of a new auto-rickshaw can range from Tk60,000 to over Tk80,000 in Dhaka.

An auto-rickshaw has four 12-volt batteries, along with a motor, switch, lights, and other components. The cost of this battery pack is around Tk30,000, with a lifespan of 6 months to 1 year. However, after 6 months, the battery can be returned for a refund of nearly half the price.

"We pay Tk350 daily to the vehicle owner. Though it depends on usage, generally, around Tk50 is needed daily for charging. It means the monthly cost for charging amounts to Tk1,500," said Md Wahid Islam, a 52-year-old auto-rickshaw driver at Shahbagh.

To put things into perspective, building a traditional pedal rickshaw costs less than Tk35,000. Also its daily garage rental fee is less at only Tk100 to Tk150. And obviously, it has no charging cost.

So why do rickshaw drivers still prefer an auto-rickshaw over a traditional pedal rickshaw?

The answer is simple. Because of its higher and faster return on investment.

Ali Hossain, a rickshaw maker for almost 40 years, shared his thoughts on the changing trends in his business, "I no longer make pedal rickshaws because it's not profitable. These days, commuters are always in a hurry and prefer auto rickshaws over pedal ones."

Auto-rickshaw drivers require no physical effort, reach destinations quickly, and can afford to charge a lower fare. It enables them to carry far more passengers throughout the day compared to pedal rickshaws.

"On average, we can earn around Tk35,000 or more per month," said Md Islam, the auto-rickshaw driver. 

On the other hand, the pedal rickshaw pullers can earn only around Tk15,000-20,000. On some days, they earn nothing whatsoever, as due to immense physical labour, they often fall ill. 

Millions of rickshaw pullers depend on the livelihoods provided by driving auto-rickshaws.

Professor Dr Md Shamsul Hoque, director of the Accident Research Institute (ARI) of Bangladesh University of Engineering and Technology (BUET) says the profit maximisation theory applies here. In economics, it states that a business's primary goal is to maximise profits.

"The main motivators for rickshaw drivers are the garage and rickshaw owners, as they can charge higher fares and make greater profits from auto-rickshaws," he said.

However, there are various issues with these auto-rickshaws. First and foremost, the safety issue is the most concerning one. It's because of their technical faults and uncontrolled movement on the streets.

Sources from the Bangladesh Road Transport Authority (BRTA) mentioned that battery-run rickshaws, vans, and similar three-wheelers have been worsening the road safety situation in Dhaka city.

The evidence is not far off. Just a few days ago, a Jahangirnagar University fresher named Afsana Karim Rachi was killed in a battery-run rickshaw accident on her own campus, sparking protests among students.

According to data from ARI, 900 accidents caused by battery-run rickshaws occurred across the country between January and October this year. Among them, 582 were severe.

"Small vehicles are the leading cause of road accidents. Public transport should be optimised to its full potential, and small vehicles should be controlled," Professor Hoque told The Business Standard.

If the road structure is poorly planned, he says, accidents are bound to happen. There is a basic science behind urban road planning. 

According to him, the highest priority should be given to pedestrians, ensuring that footpaths are wide and usable. Next in priority should be public transport. Finally, smaller vehicles like auto-rickshaws and CNGs should have separate lanes.

Besides safety concerns, auto-rickshaws also put pressure on the national power grid as they are charged using electricity. 

Using 48 to 60-ampere chargers, it takes 7 to 8 hours to fully charge an auto-rickshaw. They also pose an environmental threat due to the lack of a proper disposal system for expired batteries.

However, banning these vehicles right away is not the way to go, believes Professor Hoque. Existing drivers should be given time for switching to alternative livelihoods, or they will keep protesting like this.

"To manage floodwaters, we first close the floodgates. Similarly, to control the auto-rickshaws, we need to stop importing them and their batteries first," he concluded.