Why the Rs 1-lakh car is not good for India

"What is good for General Motors is good for America," said Charlie Wilson, chairman and CEO, GM in 1955. Such was the impact of the car industry on the US economy.

The US car industry went on to dominate global car business until some time ago when it received major body blows from the Japanese car manufacturers.

Car industry: Iconic status, calamitous consequences

The impact of a robust car industry cemented the US economy but it also led to a car mania that is yet to lose its grip over the world's richest nation.

As of 2002, there were 590 million passenger cars worldwide. This means that there was roughly one car for every eleven people worldwide. The US statistics were, however, quite different. In 2002, it had 140 million cars: meaning there was one car for every two people in United States! Cheap car loans, affordable cars due to the economies of scale and a very large manufacturing base made Americans own cars as if their lives depended on it.

It is the American passion for cars that has seen the US become one of the biggest guzzlers of gasoline. Americans consume up 9,495,000 barrel of light distillates (mostly gasoline) every day. This constitutes 45 per cent of America's consumption of all categories of fuel.

Since America imports most of its crude (its net daily import of crude + fuels is 12,200,000 barrels per day), it has made America one of the most energy-starved nations in the world.

Indian scenario

The Indian energy scenario is equally bleak but there is a major difference here. India is also very heavily dependent on imports to meet its oil consumption that stands at 2,485,000 barrels daily. The share of gasoline, however, is less than 8 per cent of total fuels consumed.

The main reason that the petrol sales constitute such a small percentage of total fuels is that India has a relatively small car population.

It has only 3 cars per 1,000 people. I recently read that global investment bank Goldman Sachs has estimated that by 2050, India's car population will overtake American car population.

To me this look highly unlikely as I have always believed that India would continue to be a motorcycle country. Rural folk, I thought, would continue to buy motorcycles after each successful harvest and the city youth would keep zipping away to work on ever more powerful bikes.

But the Rs 1-lakh (Rs 100,000) Tata car could upset these calculations.

The price difference between a new Tata small car and a new bike would become too small to be overlooked by a young man (or woman) who is out to buy his first vehicle.

Impact of Rs 1-lakh Tata car

• The motorcycle industry could go into a spin as more and more people would go for the Tata small car, instead of buying a new motorcycle.
• Traffic on the roads would become even more maddening. The influx of thousands of cars in place of new bikes will make roads more congested. Motorcycles are small and easily manoeuverable. . .  thus they don't contribute to the traffic snarls. A motorcycle is a small piece of fast-moving machinery, which carries one or two passengers whereas a car is a bigger moving vehicle, which on an average would also not carry more than one or two people. This would negate the impact of whatever gains we have made in infrastructural development like road widening or construction of flyovers.
• The parking lots will be packed more quickly. The air would become more polluted. More cars would require more water to wash them. These are three things (space, air and water) which are already under a big strain in our cities. The Rs 1-lakh car will put a further squeeze on them.
• With more cars on the road, gasoline consumption will go up drastically. The Tata car can't be more than one-fourth as fuel efficient as a Hero Honda or a Bajaj motorcycle, some of which run 80 km to a litre of petrol. The increased petrol consumption will put more pressure on our hydrocarbons sector. India would also begin to guzzle petrol like the USA. And if the Goldman Sachs theory comes true, then we would be a really troubled nation by 2050.

What India needs is a not cheap car, but more fuel-efficient cars. It also needs to make its public transportation better. This would require massive funding, but would reduce fuel consumption which in turn would reduce our overall trade deficit.

One small way of funding infrastructure requirements of public transportation would be to increase excise duty on cars. This may make cars more expensive and less affordable. . . But then isn't that our primary objective too, given the state of our energy equation?

The author is a management consultant and a freelance writer. He is currently on a consulting assignment in Nigeria. He can be contacted at sudhir_bisht@rediffmail.com