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The West
seems thoroughly unimpressed by India’s $2,500 car.
The
media focused on the environmental evils of millions of
Indian households owning Tata Motors Ltd.’s Nano. A
Washington Post headline said it all: “It Costs Just
$2,500. It’s Cute as a Bug. And It Could Mean Global
Disaster.” Others dismiss it as the Yugo of our times—a
lemon destined to fail.
Missed
in all the incredulity is that Tata’s new vehicle is an
engineering marvel that speaks volumes about India’s
economy. China’s, too.
Sure,
the “People’s Car” is cheap and tiny and probably
wouldn’t thrive in show rooms in Miami or Paris.
Commentators in India have called it a feat of “Gandhian
engineering,” meaning unpretentious and stripped down.
For many automobile enthusiasts, the two-cylinder,
no-frills car will seem a bit too egalitarian.
Yet, the
Nano is an example of the reverse technology needed to
reach the market that Paul Collier wrote about in his
book The Bottom Billion. Tata chairman Ratan Tata
is reminding the world that there’s great potential in
expanding markets to low- income consumers who don’t
much interest the West.
What’s
more, Tata’s feat is a reminder that India’s economy is
far more than just service centers and
information-technology companies. India boasts of an
engineering prowess that may continue to confound
naysayers, create well-paid jobs and accelerate the
growth of the middle class.
‘Rising
elephant’
Officials in Beijing may want to take their gaze off the
2008 Olympics for a moment to ponder all this. While
China gets most of the headlines and foreign investment,
India is quietly raising its economic game.
It won’t
come as a surprise to fans of Ashutosh Sheshabalaya’s
2004 book Rising Elephant, which argued that
India is doing with high-tech and engineering know-how
what Japan did with cars. To him, Tata’s Nano proves the
point.
“This is
not a tsunami in the making,” Sheshabalaya wrote on
TheGlobalist.com last week. “Rather, it underscores how
India leverages its white-collar strengths in the
knowledge economy to exert a powerful force on global
blue-collar manufacturing. In doing so, it engages in a
diametrically opposite direction from
China.
Along the way, India will spring some wholly new
surprises.”
‘Chindia’
China
is the world’s factory floor; India is its back office.
This adage is looking dated as the Nano prepares to hit
the roads of Asia’s third-largest economy. It’s likely
that Tata, by “Bangaloring” the global car market, will
accelerate an innovative revolution among makers of
everything from computers to motorbikes to air
conditioners to microwaves to televisions.
The
China-versus-India debates of a few years ago have
largely given way to talk of “Chindia.” Indian Prime
Minister Manmohan Singh ended a recent trip to China
amid talk of a “high-quality” regional trade agreement
and “shared vision for the 21st century.”
China
can still learn from India, just as India can benefit
from studying its neighbor’s successes. China has a huge
head start when it comes to the roads, bridges, ports
and power systems needed to raise living standards.
China
also receives the bulk of Asia-bound investment.
Yet,
India has done better in creating a genuine economy that
produces globally competitive companies and innovative
products. Armed with more than $1.5 trillion of currency
reserves, China seems more interested in buying overseas
enterprises than building local ones that provide jobs
and wealth.
Macro
story
India
is far less reliant on exports, has better demographics
and is making strides toward creating a consumer market.
India’s middle-class—those with annual disposable
incomes of between $4,380 and $21,890 in current
dollars—will increase more than tenfold to 583 million
by 2025, estimates New York-based consulting firm
McKinsey &
Co.
Officials in New Delhi are getting their macroeconomic act together.
India
has long been a good micro story thanks to the rule of
law, good companies and the checks and balances that
come with democracy. Its macro development—stable
growth, acceptable inflation, foreign direct
investment—has been less impressive.
India’s
macro story is increasingly complementing the micro one.
Efforts to raise the limit on foreign-equity stakes in
local insurers to 49 percent from 26 percent and letting
overseas lenders increase holdings in India’s private
banks may reap important benefits. Foreign participation
in telecommunications helped India become the world’s
third-largest user of telecom services and the
fastest-growing wireless market.
Environmental concerns
There
are plenty of opportunities for India’s notorious
bureaucracy to muck things up. Tata’s Nano offers a
model that can be emulated in the private sector if the
government does more to build good roads and ports, and
train new generations of skilled managers.
Also,
the Nano isn’t all good news. Rajendra Pachauri,
chairman of the UN climate-change panel that shared last
year’s Nobel Peace Prize with Al Gore, has said “I am
having nightmares” over the environmental risks posed by
such a car.
This is
still a Henry Ford moment of sorts for India, and
investors who miss it may have regrets in the years to
come. That goes for China’s leaders, too. |
