Sunday, January 20, 2008

Policy & Entrepreneurship: The "People's Car"

Recent statistics indicate that India can claim to be home to one out of three of the world's poorest people, and four of the world's twenty-five richest men (Forbes 2007). As of January 2008, it is also the producer of the "one-lakh" car or the "people's car" ( feature).

One-lakh is the common Indian term for 100,000, and also the base price (Indian Rupees = $2500 US) for one of these cars. The much-awaited Tata Nano, a project more than five years in the making, boasts an engine of 623 cc and is expected to provide 50 miles to the gallon. Designed to replace mopeds and motorcycles, the Nano is being marketed as a safer and cleaner transportation alternative for India's masses. However, affordability or access is not the issue faced by Indian policy makers. Can the Indian government allow Tata Motors, a credible and successful auto-manufacturer, to sell hundreds of thousands of these cars in a country with horrifying road congestion and traffic jams, pollution and air-quality issues, and rising energy needs?

Although it complies with Euro III (and eventually Euro IV) emissions regulations, the Nano is still powered by gasoline. India, a net energy importer, will still have to rely on petroleum as a source of energy for transportation. Therefore, on the one hand, by allowing the sale of the Nano, Indian economic and industrial policy will only encourage further reliance and consumption of non-renewable fuels.

On the other hand, the fuel efficient and "green"er Nano will diffuse the concentration of energy consumption, by reducing the number of inefficient vehicles. This reduction will, of course, be nullified by a net increase in consumption and emissions. But the success of the Nano as a consumer product may achieve some additional goals:
1. Encourage energy-efficient technology innovation in a country that will grow at an annual rate of greater than 8% for the next 25 years
2. Set a precedent for industrial innovation globally
3. Set a precedent for how entrepreneurship and innovation can influence consumer culture in a traditional industry

My personal opinion (having lived in India for 18 years) is that the government should regulate production and sales of the Nano to control congestion and energy consumption. But it must leverage this trend and discipline of innovation and apply it , fundamentally and universally, to satisfy the need for mass transportation. Only then can the emerging giant enjoy sustainable growth.

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