Policy Wise

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

(Co authored with Pratik Mhatre.)

It is time the issue of urban transport is addressed in a holistic manner.

Five years ago, Ratan Tata made a tryst with destiny. He promised a car for Rs one lakh-a people’s car-and he has delivered. The new Tata Nano has been widely praised for its indigenous design, engineering skills and aesthetics. In the process, TATA’s have contributed to the maturing of a host of ancillary suppliers which can be expected to contribute positively to India’s manufacturing capabilities. The TATA’s have gone to extraordinary lengths to meet the price target; yet, NANO is reportedly capable of meeting the stringent EURO 4 pollution norms and has passed all required safety tests. Moreover, in an era where the issue of fuel efficiency has gained increasing salience, Nano’s claimed mileage of 50 miles/gallon is comparable to the best hybrid cars in the market including Toyota Prius.

Nano is not competing with any existing car model in the Indian car market. Its nearest competitor-Maruti 800- at Rs 2 lakh is almost double its price. By providing existing two wheeler drivers with a realistic and affordable option of owning a car, it can help expand the car market to the relatively lower middle class. Over two decades ago, Maruti 800 redefined the car market in India; Nano can take the automobile revolution to the next level. More importantly, Nano can spur product and process competition among the car industry not only in India but also abroad. Similar incentives would be present in the still-growing two-wheeler segment as well. It is the dynamics of competition whose benefits are likely to be far more relevant in assessing the overall net benefits of NANO.

As may be expected, not everyone is as impressed with Nano. Its many critics have primarily offered two arguments against Nano. One, with the climate change debate occupying global center stage, Nano’s higher affordability could potentially worsen the situation. Second, India’s urban infrastructure is already crumbling; attracting even more traffic to an already overburdened system may not be prudent. In the city of Delhi to give just one example, average peak hour driving speed is barely 10km/h. The situation in other large Indian cities can hardly be said to be any better.

Countering such arguments, Mrituinjoy Mohanty has pointed out in a Rediff.com column that while Nano might be cheap by global standards, it is still quite expensive for Indian incomes; the critics have overestimated the potential market for Nano. Nevertheless, it must also be recognized that with increasing prosperity, Nano and other cars of this price range would become increasingly affordable to larger segments of Indian population. Therefore, the welcome democratization of private transport must be tempered with the recognition that it has the potential of exacerbating global warming as well as worsening the already dire traffic situation. Public policy should seek to countervail these seemingly opposing positions and address the genuine concerns of the critics while recognizing the right of people to affordable private transport.

Singling out Nano for punitive taxes as advocated by Sunita Narain, the chief of the New Delhi based Center for Science and Engineering is not the solution. First, it merely punishes Ratan Tata for his vision and ability to deliver a cheap car. Second, the concept of ‘’polluter pays” has been well accepted the world over as an appropriate policy tool to ameliorate pollution. Generally, larger cars cause more pollution. Therefore, a suitable policy response would be to encourage the movement towards compact cars by imposing higher taxes on larger cars to ensure full recovery of the social costs they impose. At the same time, Ratan Tata should be held to his promise that Nano can meet all existing and even future emission requirements. A future version of the Nano equipped with a hybrid or an electric engine would dispel all concerns of pollution.

Though Nano has the first-mover advantage in the compact car market, it would not enjoy a monopoly even in the short term. Automobile major Mahindra & Mahindra has already announced its intention of introducing a compact car to compete with Nano. Two-wheeler major Bajaj Auto is joining hands with Renault and Nissan to create a similar low-cost car. International car makers like Fiat, Ford, Honda, and Toyota have also recognized the demand potential for personal transportation in the growing Chinese and Indian markets. As indicated above, a competitive market guided by a tax policy which encourages lower emission vehicles would balance environmental interests with the genuine aspiration to acquire personal transport.

The second argument has seemingly greater validity but addressing it requires a broad-based approach. Indubitably, India needs to invest in a fast, efficient and comfortable public transport to reduce the demand for personal vehicles. Nevertheless, creating barriers in India’s motor vehicle manufacturing capabilities would be counterproductive. The idea of a small car by no means prevents the expansion of public transport. Indeed, it must be recognized that it is state’s failure to invest in public transport which has fuelled the demand for private transportation. The state would be well within its rights to control the number of private vehicles by suitable tax policies, congestion pricing, high parking charges e.t.c after an efficient public transport system has been provided. It is not justifiable to do so before this essential prerequisite has been met; people cannot be expected to give up the comfort, safety, and reliability of private transport for the uncomfortable and unreliable buses or expensive taxis. Urban transportation behavior is largely determined by local cultural influences but globalization has altered the ways in which people chose to travel. Public policy should recognize and along it self with the changes in people’s attitudes.

Also, it is utopian to wish that the need for personal transport can be drastically reduced. Instead, along with more accessible and affordable public transport, urban infrastructure facilities (including vertical and below ground parking); traffic management; better driving habits and road sense must be encouraged. It is quite possible that if clarity in property rights is achieved, entrepreneurs will fulfill parking needs efficiently and affordably. Already, there has been some positive movement in this regard with multi-storied parking being created on a Build-Operate-Transfer (BOT) basis in Delhi. Other Indian cities would do well to adopt this model.

Another important issue is that of road-safety. Due to a mixture of shoddy road engineering, bad driving habits and a poor regulatory framework, over 90,000 people die on Indian roads every year and several times more are injured. In addition to personal tragedies, this imposes heavy economic and social costs on society, stretching India’s relatively weak healthcare system especially the still nascent trauma facilities. In this light, the Mumbai Police deserves unqualified praise for its recent relatively successful drives against drunken driving and those not wearing seat belts. Two wheeler riders bear a disproportionate share of road causality figures; in Delhi only 5% of those killed in roads are car drivers. Nano, specifically targeted at this segment, can improve road safety by allowing a greater proportion of road users the cushion of travelling in cars.

By 2030, majority of Indian population will be urban. Urgency in better managing urban environment, including mega cities, is noticeably absent. Without obstructing private ownership of land and while respecting individual autonomy, the state can still influence public behavior by investing in transportation infrastructure and strictly enforcing traffic regulations that improve the standard of living in Indian cities. It is hoped that Nano will help focus the minds of policymakers, urban administrators and general public alike on the need for better urban management.

(An edited version appeared in the February issue of Pragati.)

If you enjoyed this post, make sure you subscribe to my RSS feed!