Thursday, January 26, 1995

India's informal 'car'

Post script
Long before Tata Motor thought of developing a “People’s Car” costing about $2,500, there has been another kind of a car for the masses in socialist India. For over three decades, this indigenously built vehicle has been the mainstay of mass transportation in predominantly rural parts of north India. Reproduced here is my article, “India’s ‘Informal’ Car”, which was originally published on the editorial page in The Asian Wall Street Journal on 26 January 1995. And it remains one of my favourite articles, as it illustrates the tragedy and triumph of India.

In “The Other Path,” Peruvian economist Hernando de Soto devoted a whole chapter to detailing how the informal sector provides cheap modes of transportation in poor countries. Here in India, the informal sector is pushing the idea to its limits. We probably have the only informal sector in the world manufacturing its own automobile.

If one drives out of Delhi in any direction one is likely to encounter these hybrid vehicles within an hour. Known as “Jugaads,” which means roughly to provide or arrange, they have become a mainstay of rural transportation.

And true to its name, the Jugaad is the epitome of simplicity. It has a chassis and four wheels, an engine and a gear-box. It has no cabin, and the driver sits on a wooden plank behind the steering. In its cheapest form, it has a wooden floor on which are fixed two benches to seat the passengers. Some drivers will throw a plastic sheet over the top to protect passengers on rainy days.

The Jugaad doesn’t boast any electronics. The semiliterate village mechanics who assemble these vehicles have not heard of assembly-line production or of computer-aided design. Most have spent 10 to 20 years working in small garages or repair shops taking care of vehicles, tractors and farm equipment. When I asked, none of them could tell me anything about the fuel efficiency or rate of acceleration of Jugaads, but they did know how to build this extremely functional mode of transport. It is low cost, user friendly, easy to maintain — and is competing successfully against the formal automobile industry in India.

In Gohana, a small agricultural town, 50-year-old Ram Prakash used to be a farmer but for the last few years has been ferrying people and goods from village to village. When I found him he was getting the engine adjusted in his latest Jugaad: an eight-horsepower, single cylinder engine mounted on the chassis of an old jeep. Mr. Prakash settled for a wooden body, bought used tires, and did away with the option of the battery and all electrical fixtures. It cost him about $600 to patch together this very modest contraption.

How does one start a Jugaad? The driver just manually cranks up the engine with a handle. Most Indian villagers rise and retire with the sun, so there is not much need for a headlight. Some drivers install a mechanical horn, while others enjoy yelling at fellow road users.

The price of a Jugaad varies greatly. If the owner insists on all new components and a 10 horsepower engine, the price would be around $1,000. A wooden body suffices for carrying passengers, but heavier loads call for a metal body and a chassis scavenged from an old pick-up truck. Those features raise the price to about $1,400.

If the driver wants a more powerful vehicle, second-hand tractor engines are available. The one commonly used is a 25-28 horsepower, two-cylinder, air-cooled Eicher engine, because it is relatively simple to maintain. Such a vehicle could cost up to $2,000.

After independence in 1947, India’s socialist elites considered the automobile an expendable luxury. The auto industry was one of the most tightly controlled sectors of the economy. Licenses to make automobiles were granted to a favored few only, and permits regulated the number of vehicles each could produce. Added to this was a high level of taxes to discourage private ownership of automobiles and raise revenue for the government.

The result has been that in a country with a per capita income of $400, the cheapest passenger car costs upward of $6,000. Consequently, the scarcity in the transportation sector has been perpetual. The poor must travel in over-crowded public buses, and in the countryside they can be seen clinging precariously to the roof of dangerously overloaded vehicles.

Today, some half-dozen manufacturers make up India’s formal car sector. Since India opened its economy, many have formed tie-ups with international giants like Mazda, Mitsubishi, Nissan and Toyota. Minibuses and light trucks are rolling off their assembly lines at a gathering clip.

Yet there has also been a spurt in Jugaad production. All across rural India, these vehicles are being assembled in growing numbers in backyard workshops and under trees in front of roadside garages. Because of its cost advantage, the informal sector is thriving alongside the formal auto industry.

Despite liberalization, various taxes and import duties have kept the price of factory-made vehicles 80% to 100% above manufacturing cost. Import duties on steel strips are 85%, excise taxes on components manufactured within India range from 10% to 70%. The duty on completed vehicles ranges from 15% to 40%. The bottom line is is a pricetag of $7000 to $14,000 — as much as ten times the price of a Jugaad with the same load-carrying capacity.

Then there are the regulatory expenses which the owner must comply with before putting a factory-made vehicle on the road: registration, insurance, road tax, pollution checks, route permits if the vehicle is to be operated as a commercial public transport, and, of course, the driving license. All of these add to the cost of operating a modern vehicle.

In contrast, the Jugaad operates in almost laissez-faire conditions. It is manufactured by people who are not authorized by the state, and the vehicle would not meet any mandatory industry standards. The Jugaad cannot be registered, has no number plate, can’t be insured, and does not pay any tax. Most of the drivers don’t even bother about niceties such as the driving licence.

Indeed, traffic authorities are supposed to confiscate such vehicles under the Motor Vehicles Act. That’s why Jugaad operators tend to stay away from major cities and highways. Though common in much of India, politicians will never see one on the streets of New Delhi.

Jaikishen Goel, who runs a large store in Gohana selling farm equipment, acknowledges that his diesel engines are being used to power the illegal Jugaad. He says that if the government is going to keep vehicle prices high while at the same failing to meet the country’s transportation needs, then people are bound to opt for alternatives such as the Jugaad.

But can the Jugaad, which seems to be a throwback to the early days of the automobile nearly a century ago, really continue to compete against the modern automobile? The answer is that the Jugaad will probably thrive for a long time to come. It scores high with owners because the price-performance tradeoff fits well with the socio-economic conditions prevailing in large parts of rural India today. Perhaps the best illustration of the people’s acceptance of the Jugaad comes from Haryana state. Many local schools and small towns in the province have begun to contract Jugaads to transport their staff and students each day.