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Why the Rs 1-lakh car is not good for India
December 14, 2006
"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.
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
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 firstname.lastname@example.org
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