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Old 23rd January 2008, 04:40 AM
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China Should Be Afraid of India's New $2,500 Car: William Pesek

The cheaper the better? LOL

China Should Be Afraid of India's New $2,500 Car: William Pesek

Commentary by William Pesek

Jan. 23 (Bloomberg) -- 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 showrooms 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 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 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.''


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 10-fold to 583 million by 2025, estimates New York-based consulting firm McKinsey & Co.

Officials in New Delhi are getting their macro-economic 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.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in New York at
Last Updated: January 22, 2008 15:52 EST
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Old 24th January 2008, 08:22 PM
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Re: China Should Be Afraid of India's New $2,500 Car: William Pesek

I would hate to have a crash in that car, you'd be a seriously injured or dead IMO.
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