In New Delhi’s announcement on Friday, ride-hailing companies like Ola and Uber will be limited to collecting a commission of up to 20% of each ride fare within India, presenting a new challenge for these SoftBank-supported businesses as they work to strengthen their financial positions in this important international market.

These guidelines represent the first time that contemporary, app-based transportation networks have been brought under a formal regulatory structure in the country, and they also establish restrictions on “surge pricing”—the increased fares that Uber and Ola apply during periods of high demand.

The guidelines stipulate that Ola, Uber, and all other app-based ride services can charge no more than 1.5 times the standard base fare. Conversely, they have the option to provide services at a 50% discount from the base fare. The regulations also specify that drivers should not work more than 12 hours per day and that the companies must provide them with insurance coverage.

Previously, Uber and Ola have not disclosed the exact amount they charge drivers for each ride, but industry estimates suggest that a driver partner with either company receives approximately 74% of the fare after taxes. The new guidelines mandate that drivers should receive at least 80% of the fare.

The limitations on ride fares and the required insurance expenses will increase operational costs for Uber and Ola in India, both of which have reduced their workforce in recent months to lower expenses during the pandemic. Simultaneously, the South Asian nation, which has attracted significant investment from major international companies seeking new growth opportunities, is currently experiencing an unprecedented economic downturn.

However, the guidelines aren’t entirely disadvantageous for Uber and Ola, neither of which offered a statement on Friday. The rules will allow the companies to offer carpooling services using privately owned vehicles, although these services are limited to a maximum of four intra-city rides daily and two inter-city rides weekly.

Ujjwal Chaudhry, an associate partner at the Bangalore-based marketing research consulting firm Redseer, commented that the government’s guidelines will have a varied effect.

“While the formalization of the sector and increased consumer confidence in aggregators through enhanced safety regulations are positive developments, the overall impact on ecosystem growth is negative. Capping surge pricing and platform fees will ultimately reduce earnings for the 5 Lac (500,000) drivers currently using these platforms and will also likely result in higher prices and longer wait times for the 6-8 crore (60 to 80 million) consumers who rely on these services for their transportation needs,” he stated.

The regulations also address various other aspects of a ride. For example, cancellation fees charged to either the rider or the driver cannot exceed 10% of the total fare, nor can they surpass 100 Indian rupees, which is equivalent to $1.35. Additionally, female passengers who choose a carpooling option can request to share the vehicle exclusively with other female passengers, according to the rules. Ride-hailing companies are also required to establish a 24/7 control room.

Ola and Uber currently hold the dominant positions in India’s app-based ride-hailing market. Both companies claim market leadership, although SoftBank, a shared investor, recently indicated that Ola has a slight advantage over Uber in India.