Tata Nano: A glimpse of the potential industrial revolution in India

The media frenzy around the unveiling of Tata Motors’ Nano, may drown two of the most significant aspects of this project, it provides a glimpse of the manufacturing revolution that has largely bypassed India, so far. In that context, tragic events in Singur a year ago could have been easily avoided. This article was published in Liberty Institute's website In Defence of Liberty, on 13 January 2008.

The media frenzy around the unveiling of Tata Motors’ Nano, may drown two of the most significant aspects of this project - firstly, it is a completely new product, which aims to make personal transportation accessible to those who could not afford a car earlier; secondly, and more importantly, it provides a glimpse of the manufacturing revolution that has largely bypassed India, so far.

While Tata Motors has a long history of making commercial vehicles, it launched its first passenger car only in 1998. In the last ten years, it has produced a million cars, but remains a relatively small player in the passenger car segment. That such a minor player on the global stage can so radically reengineer a product as to access new customers, while meeting international safety standards, makes it an unqualified managerial success. Doubtless, it has made significant technological leaps too, and there is some talk of possible patents as well.

Today, it is widely accepted that mobility and communication are critical to economic and social participation. Yet, in most poor countries, low-cost public transport is uncertain or non-existent, and many poor families have to risk life and limb by braving city traffic on two-wheeled scooters or motor-cycles.

Exactly a century ago, in 1908, the Ford Model T put “America on wheels”. The assembly line off which it rolled increased productivity so much that a worker could afford to buy the car with four months' worth of wages. At the same time it shaped American sociology, by showing how personal mobility greatly enhanced personal autonomy. It is a strange coincidence that the Nano is priced very similarly to the Model T - its price in 1920s would equate to $ 3000 in 2006 dollars. And the Tata Nano will cost about $ 2500. Of course the Nano is a huge technological advance, packing 33 hp to the Model T's 20, with a fuel efficiency of 20 km. to the liter, compared to the Model T's 5 to 9.

But the most significant fall-out of Nano may be the realization that low cost manufacturing is not the domain of China alone. Like Ford T, Tata Nano’s real contribution may be to demonstrate the competitiveness and technological viability of manufacturing in India. The industrial revolution may yet come to India, riding the Nano; a century late, perhaps, but better late than never.

Of course, much more economic reform is necessary if India is to experience the much needed industrial revolution. But Tata’s Nano gives us a glimpse of the possibilities.

Not surprisingly, there are many who have expressed concerns about the prospect of the masses accessing personal automobiles. The issues they raise range from the impact on oil prices and a concern for global warming, to traffic congestion. Most such commentators have not been known to eschew their personal automobiles, or other modern conveniences, but have no qualms in frowning upon the masses enjoying some of the same benefits. This desire to keep others off the life-boats of their standard of living is a common feature of many who claim to have social or environmental concern in their hearts. One fact worth reminding them of is that transportation is one of the biggest expenses faced by rural poor seeking health care.

The opposition to Nano is also an illustration of the head-in-the-sand mind-set, which pits rising demand for consumption against environmental conservation.

In fact, as more Indians are able to afford more cars, the scale of consumption will help improve the technology, improve efficiency and clean up the environment. It is not a coincidence, that Toyota's ascent up the world auto league has been accompanied by its pioneering efforts in new technologies and innovation. Though counter-intuitive, it is true of most areas of enterprise that only enhanced scales of consumption lead to improvement in efficiency - in this case, easily measured by tail-pipe emission. It is worth noting that while Toyota sold well over 9 million vehicles in 2007, Tata Motors took ten years to sell its millionth passenger car.

Also as more Indians learn to drive, the appreciation of basic road rules and etiquettes will improve, as drivers begin to realise that the purpose of the rules are not to hinder movement, but to facilitate it. Finally, with greater mobility, congestion may actually get diffused, as the range of personal mobility increases. Also, with more demand for mobility and motor-ability, more resources could be devoted to expanding the road network, and expanding the parking facilities.

Hardly any shopkeeper is disgruntled if he finds a large crowd of buyers at his shop. It becomes an incentive to try and expand his business, and cater to even larger clients. Unfortunately, roads and parking are services that are not looked upon as any normal businesses. And under public management, greater flow of traffic or demand for parking is seen as a headache for the authorities, rather than as an opportunity. It is ironic, but unfortunately true. Compare the parking facilities in Khan Market with those in Connaught Place, in the heart of Delhi. In the former, parking is free, maintained by the shop-owners to facilitate customers. In the latter, parking is seen as a milking cow by the parking contractors and the municipality, with least concern for the businesses and the customers.

To assess the on-road performance of Nano, we will have to wait for its commercial release. Our belief, though, is that–apart from enabling people to graduate from two-wheelers to the greater safety and comfort of a four-wheeled car–the Nano will also appeal to commercial transporters such as auto-rickshaw operators. That itself, could improve the quality of movement on Indian roads.

Needless to say, that opening of the car market to a new but large segment of the population itself will attract others to seek a share of the pie. And with greater competition, the whole society will benefit.

Despite the promise, it is worth keeping in mind that the Tata’s have had to rediscover the wheel, to an extent. If the duties on imported cars were not as high as it is, about 60% on new ones, and about 100% on second hand cars (down from 180% in 2001), a much higher performance vehicle could have been imported at much lower cost. Likewise, a third of the price of the cars on Indian roads is contributed by various kinds of taxes. In addition, the 100% taxes on fuel, adds significantly to the operational cost.

India has one of the lowest densities of vehicles, at barely 8 per 1000 people, compared to over 500 in the US. Various fiscal and regulatory barriers that have retarded mobility, have also weighed down the economy as a whole, as well as shrunk the space for personal autonomy. And by all accounts has not helped the environment either.

Given this not so conducive environment, the Tata Motors small car is a reflection of the huge leap Indian entrepreneurs are capable of. This only brings to greater relief the tragic development in Singur over the past year where the Nano is slated to be manufactured. There the farmers have been protesting 1000 acres of land acquired by the government for this project. There will inevitably be accusations of blood on the Nano. It was completely unnecessary, since cost of the land could not have been even 10% of the total investment for this project. Tata Motors could have easily bought the land, or should have highlighted the reasons why even with funds, they may not have been able to purchase appropriate land in the four years that took them to develop the Nano. Because land laws in the country would not have given them access to land, in much the same way that makes most Indians still unable to aspire for a personal mode of transport.

Farmers – small and marginal - and industrial enterprises, both deserve much better. The Nano is a small car, but if it helps to expose the self-imposed brakes that restrain us, it could prove a powerful engine to drive us towards a new industrial revolution in India.