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Jugalbandi: The Road To Riches Debate

Jugalbandi explores issues relevant to the informed reader, within a forum of spirited point to counter-point debate between the authors, Ajmal Noorani and Gautam Chinai.

Innovations often come with the promise of filling a niche, or satisfying a need by offering cost savings, improved technology, or greater convenience. There are hundreds of examples of such innovations in our lives: the telephone, facsimile machine, cell phone, internet, even the ubiquitous kitchen blender. Most such products are embraced by their users with little question of their merit. In India, Tata Motors is in the process of creating a new product that has created both a buzz and a controversy, within and without the country.

The People’s Car, which will be available in fall 2008, will be a rear-engined, four-door, four- seater with a very modest 33 horsepower. The amazing thing is that it will cost under $2,500, appealing to potentially millions of drivers! This is a big deal because India is the second fastest growing car market after China, thanks to a swelling consumer middle class and a population with a median age of about 25. According to auto industry analysts, by 2013 Indians will be buying 3.8 million cars, up from only 1.3 million vehicles sold in 2006. Today, India has only seven cars per 1,000 people and the industry has grown an average of 12% per annum in the last ten years. While the numbers are impressive, the Indian car market consists of a billion people buying roughly the same number of cars in a year as 300 million Americans buy in a month! But that is precisely the point: there is tremendous upside potential in the Indian auto arena.

So what’s the downside? Well, there are many who fear that the strong demand for the Tata car – as well as other low- cost models on the drawing board – will lead to problems, such as more traffic and pollution, parking pressures in metro areas and adverse consequences on other industries.

Hop in and take a ride with the Jugalbandi authors, as we kick the tires and test drive this controversy.

Gautam: Time for a joyride!

In response to the outcry from environmentalists that such a car will worsen pollution in major cities, Ratan Tata, CEO of Tata Motors (NYSE: TTM), says the People’s Car will emit “less pollution per vehicle than any other vehicle [in India] today.”

In addition, creating and marketing such a vehicle opens up new venture opportunities that will further the country’s thrust toward a higher standard of living by creating more factory jobs, dealerships, repair shops, parts and accessory manufacturers and the like. Recently, for example, Fiat entered into a 50/50 partnership with Tata to make transmissions, engines and cars in India for the domestic and overseas markets. Similarly, Renault-Nissan inked a deal with another Indian automaker to make a car that would sell for about $3,000 for the domestic market, as well as for export to places such as Africa, Southeast Asia, eastern Europe and Latin America.

How can anyone want to stop progress? I think is it terrific that India is evolving into one of several global centers in the world for small car production. The impact of the auto industry and all the ancillary industries surrounding car manufacturing could – over the long term – have a potentially more significant trickle down effect to the economy and standard of living for citizens than the success of the much-praised IT industry. Just the Tata Motors project is expected to create 10,000 jobs in West Bengal.

The price of the Tata vehicle means that millions of people who are forced to drive two-wheelers and three-wheelers (auto-rickshaws) due to budgetary constraints will now have an opportunity to drive a four-wheeled, four-door car. And I don’t know a single soul that wouldn’t be happy having less of those unsafe, noisy auto-rickshaws on the roads.

Finally, let’s look at safety. I have often witnessed an entire family of four riding on a morotcycle in Mumbai traffic. Clearly, this is only because the household can not afford a four-wheeler. With the coming of Tata’s car, so many lower-income families will have a safer choice in which to transport themselves. I predict that fatalities will decrease, despite having more vehicles on the road, simply because less folks will be riding two and three wheelers.

Ajmal’s navigating this debate on a nearly empty tank – and a few loose screws in his engine – but let’s see if he can make a case for taking the high road…

Ajmal: Can you spell Gridlock? How about Asphyxiation?

India is drunk on its economic growth and this is yet another example of the trickle-down cool-aid being peddled by the industrialists and politicians they own. Every mention of the country’s amazing growth and potential is accompanied by the caveat that the infrastructure is poor and getting worse, and that traffic and pollution are horrendous. Joyride, my foot. Gautam is right about one thing – the potential (for car sales and corporate profits) is enormous. About 7 million scooters and motorcycles were sold in India last year, costing from $675 to $1600. Rising salaries and upbeat economic prospects make a $2,500 car very affordable to a large number of these buyers. There are about 65,000,000 scooter owners. That is why Tata is rushing out to cash in on this market, with utter disregard for the impact it will have on the traffic infrastructure and the environment.

Traffic jams and parking problems are a routine affair in India’s congested cities. Even without a cheap car, one thousand new cars are purchased every day in New Delhi alone, where the air pollution is now headed back to the pre-2000 levels that claimed over 50,000 lives a year, according to research reports. Anumita Roychowdhury, Associate Director for the Center for Sciences and Environment in New Delhi, said the low priced vehicles would worsen India’s pollution and traffic congestion. Presently, nearly 60% of India’s cities have pollution levels that are considered ‘critical’.

For a third world nation, India has very efficient public transportation. In Mumbai, nearly 70% of the population uses its overcrowded yet amazingly resilient public transportation. The cheaper car will provide the wrong incentive, reducing use of public transport which makes far more efficient use of available space and is less polluting.

The Tata car will not undergo full-body crash testing, as this is not a requirement in India. It will not have airbags or anti-lock braking systems. While it’s likely to be stuck in worsening traffic jams more often than not, its users will also venture out on the newly built highways at breakneck speeds, and its lighter body and smaller size will result in more accidents and fatalities.

London mayor Ken Livingstone, who was instrumental in levying congestion tax on cars coming into central London, says “Once there is adequate public transport, the government has every right to reduce new car permissions.” The London mayor was also critical of public money being wasted on roads and flyovers. “You can go on making them and they will all be filled up by cars. The basic road infrastructure is enough, now stop new cars,” he said.

But that wouldn’t help Mr. Tata catch up with the Ambanis and Mittals on the Forbes Richest list, would it?

Final Word

How will India – and the rest of the world – embrace the People’s Car? When the Ford Model T was introduced in 1908, it cost approx. $20,000 (adjusted to 2007) and was an overwhelming success. It led to further innovations in the auto industry and in manufacturing methods in general. The Volkswagen Beetle was introduced in 1956 for approx. $10,000 (adjusted to 2007). Now the Tata “People’s Car” will be released in 2008 for about $2,500. Will we all be better off or worse? We’ll have to take the long road out of Eden to find out.

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