Govt proposes cutting minimum rental car fleet from 50 to 5 vehicles to ease market entry

The Ministry of Road Transport and Highways (MoRTH) has proposed reducing the minimum fleet requirement for operating self-drive and chauffeur-driven car rental businesses from 50 vehicles to just five, in a move aimed at lowering entry barriers and encouraging greater participation in the sector.

The proposal forms part of the draft Rent-a-Cab Scheme 2026, which seeks to replace the existing regulatory framework introduced in 1989. The revised scheme is proposed to come into effect in January 2027.

Under the draft regulations, applicants seeking to operate a car rental business must maintain a minimum fleet of five motor cabs, with at least two vehicles stationed at each place of operation.

The substantial reduction in the fleet requirement is expected to make it easier for smaller businesses and new entrepreneurs to enter the organised car rental market without making large initial investments in vehicles.

𝐅𝐥𝐞𝐞𝐭 𝐫𝐮𝐥𝐞𝐬 𝐫𝐞𝐥𝐚𝐱𝐞𝐝

The existing framework requires operators to maintain at least 50 vehicles, creating a significant financial barrier for smaller businesses seeking to enter the rental car industry.

By proposing a reduction to five vehicles, the ministry aims to make the sector more accessible while retaining minimum operational requirements.

The draft states that an applicant must have at least two motor cabs stationed at each place of operation and maintain a fleet of no fewer than five motor cabs in total.

The proposed changes would apply to businesses offering both self-drive rental vehicles and chauffeur-driven car services.

The relaxation could encourage more local operators to enter the market, particularly in smaller cities and tourist destinations where demand for rental vehicles may not justify maintaining large fleets.

𝐈𝐧𝐬𝐮𝐫𝐚𝐧𝐜𝐞 𝐜𝐨𝐯𝐞𝐫 𝐦𝐚𝐧𝐝𝐚𝐭𝐨𝐫𝐲

While easing the fleet requirement, the ministry has proposed safeguards intended to protect passengers, drivers and other vehicle occupants.

According to the draft, every motor cab operating under the scheme must have a comprehensive insurance policy.

The policy must provide coverage for the renter, driver and other occupants up to the vehicle's permitted passenger capacity.

The requirement is intended to ensure that people using rental vehicles have appropriate insurance protection in the event of an accident or other covered incident.

Operators would therefore need to ensure that their vehicles comply with the prescribed insurance conditions before being used for rental services.

𝐏𝐞𝐧𝐝𝐢𝐧𝐠 𝐜𝐡𝐚𝐥𝐥𝐚𝐧𝐬 𝐛𝐚𝐫𝐫𝐞𝐝

The proposed scheme also introduces compliance requirements concerning traffic violations and criminal records.

Vehicles seeking to operate under the rental framework must not have any pending challans relating to offences or contraventions under the Motor Vehicles Act.

This provision would require operators to clear outstanding traffic penalties before including vehicles in their rental fleets.

Additionally, vehicles must not be listed in the police criminal database maintained by the National Crime Records Bureau.

The proposed checks are aimed at ensuring that vehicles entering the rental market meet basic legal and regulatory requirements.

𝐍𝐞𝐰 𝐟𝐫𝐚𝐦𝐞𝐰𝐨𝐫𝐤 𝐩𝐫𝐨𝐩𝐨𝐬𝐞𝐝

The draft Rent-a-Cab Scheme 2026 represents an attempt to modernise the rules governing rental car operations, which have largely been based on the framework introduced more than three decades ago.

The proposed changes seek to balance easier entry into the business with requirements relating to insurance, traffic compliance and vehicle records.

For prospective operators, the reduction in the minimum fleet size could significantly lower the initial capital needed to establish a rental service.

However, the provisions remain proposals and will acquire legal force only after the government finalises and notifies the revised scheme.

If implemented as proposed, the new framework could reshape India's car rental market by allowing smaller operators to compete alongside established businesses while remaining subject to prescribed safety and compliance standards.