The Tata Nano — Part 2

In the previous post I claimed (not unlike some other observers) that the Nano is game-changing. The Nano has to be seen not just in the Indian context but in the bigger global context. That is why I made the point that it can be seen as the “Peopes’ car” and not “Indian People’s Car.”

In another post on the Rs 1 lakh car in October 2007 I had said:

It scares me witless. These days, oil is selling for around US$85 a barrel. India imports most of its fossil fuel requirements. It is a poor country and cannot afford high priced oil — and oil is going to become increasingly costly because demand will continue to rise and supply will continue to fall. That is Econ101. India is also a very small country relative to its population. With 17 percent of the world’s population and 2 percent of the world’s land area, land is at a premium in India unlike say in the US (where the population density is a tenth of what it is in India.) You cannot just have cars: you need fuel and you need space to use the cars in. It is insane to not do basic arithmetic (”Those who refuse to do arithmetic are doomed to speak nonsense”) and realize that cars are not the solution to India’s predicament regarding transportation within its cities.

There is no contradiction in the above two. Tata’s achievement is in the private space — that as a corporation, it is supplying to a globally perceived need, the need for an affordable car. No other car manufacturer has done so before (except as a commenter noted the Ford Model T) but now many others are attempting to do so. Tata Motors changed the game — and now there is a rush to produce the “affordable car.”

There is a larger lesson here for Indians to take away. Indian corporations can make bold risky moves that transform how something is done in the world. The limited liberalization of the Indian economy has as one of its major fallout the demonstration that Indian corporations can take on the best in the world and thrive. The positive side-effects of Tata’s Nano goes beyond cars. It is about perceiving a need, having a vision to meet that need, and then delivering on a promise made. That will have an effect on the people of India, on the policymakers, and on other Indian corporations. That is what we call the positive externalities.

The negative externalities of even more cars on Indian roads is what is worrisome. It is transportation services that matter, not whether you get that service using cars, hovercrafts, trains, buses, etc. People balance their entire families not out of sheer bravado but because they don’t have the option of taking a clean comfortable bus. An efficient urban public transportation system in today’s world makes more sense than cars. The “public” is important. Public as in “public goods” and also as in “the people.” The private sector is fully capable of building a public transportation system but it requires public policy to do so because it involves the use of public resources such as the right of way and other legislation.

Ratan Tata is right in building the Nano. But that does not mean that the Nano will not make the already congested roads worse. The Indian policymakers must plan for good urban public transportation systems so that people have a choice other than balancing on two-wheelers or sitting in traffic.

[Related post: Trains and the Transportation System.]