Saturday, January 12, 2008

Is Nano really a Rs 1 lakh-car?

Really for Rs 1 lakh? (Image: NYT)

Everyone is gasping at and lauding the fact that Indian automobile engineers have produced a car that can be sold at Rs 1 lakh. But I wonder if all this excitement about Nano as a seminal feat of Indian engineering is well merited and if this price tag isn't a face-saving exercise for Ratan Tata. Not that I want to be the party pooper. In fact, I feel the criticism offered by Sunita Narain or Rajendra Pachauri about environmental damage is completely misplaced. It sure is remarkable that so many Indian families can now look forward to owning a car. That doesn't stop the government from improving public transport facilities. Does it? Moreover, it may reduce the number of two-wheelers on the roads and related deaths.

However, my hunch is that Nano is worth more than the quoted price and that Tata is selling the car at a lower price to save face and as an unprecedented publicity gimmick. Tata initially wanted to design a low-cost car with no fixed price. The exact price tag came up casually during Ratan Tata's interview with FT. Since then the tag has stuck and has been spectacularly propagated worldwide. Who would risk not adhering to that? Imagine the disaster if Nano was priced even at Rs 1.5 lakh! Tata’s comment, with a fine reading between the lines, hints at what I am referring to: "The Rs 1 lakh price tag might be difficult to hang on to, given rising costs. But a promise is a promise," Tata said, adding, "I am a shy person. The media attention and expectation were traumatic… But the challenge has just begun. We have to deliver on our promise. The nation has to accept it. There is a along way to go." And already, he’s praying for a tax break to reduce further possible losses.

So is it, after all, that great an achievement for Tata and the Indian automobile industry? What if XYZ firm produced a car that would have normally sold at Rs 2 lakh but undercut the price at Rs 1 lakh to sell more and gain attention? More so when the firm is one like Tata that can recover losses from its other operations and has large economies of scale? Moreover, variants of Nano, it has been announced, will be priced higher. And we haven’t even driver a Nano yet. Ratan Tata famous one-liner "A promise is a promise" sounds more like "Well, we would have sold the car for more than Rs 1 lakh but then we had to stick to the tag and save our face. Not doing so would have been a publicity disaster for the company."

Would you still view Nano’s launch so jubilantly? Not me.


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