Sunday, June 01, 2008

Innovating to disaster: Does India need Nano?

I have never been a big fan of the car revolution in India.  Many free market enthusiasts would argue that people should be allowed to purchase and enjoy what they can afford and hence, the development of cars such as the Nano is justified.  However, given the huge environmental concerns and all the costs that come along with over 350 million Indians driving a Nanoish car to work, I vote for institutional intervention over free market capitalism.  It is time that we all realize we are on the verge of a global collapse due to oil dependence.  What india needs is better commuting solutions, preferably involving mass transit, not small cars that lead to greater pollution and traffic jams in India's already clogged cities.

The role of institutions cannot be underplayed in scenarios such as the one that many developing economies face today. Faced with energy insecurity governments all over the world are scrambling to set-up unholy alliances with countries that have perpetuated this "insecurity" to begin with.  The apt response would have been to invest in renewable energy sources and reward innovation that creates novel solutions to problems involving mass transit, fuel economy, alternative energy resources among others.  These issues are more important for countries such as India than for maybe, a developed country such as the US that can bulldoze its way around the world for secure energy, maybe not for too long but at least for the moment.  It is a disaster of scientific progress that Tata Motors chose to focus on the Nano in times such as these. Lack of forward thinking by our leaders (industry captains and the babus)  will only lead to further chaos and instability in India's quest for energy sufficiency.  Creative solutions could include, tax subsidies to people who motor-pool, use two-wheelers, use public transit.  Further, public transportation could be privatized - leading to efficient and effective services facilitate through market dynamics.

For example, no new license are being granted to three-wheeled auto-rickshaws in Hyderabad. Good intentions were behind this, I am sure.  However, if this is not complemented with an increase in buses -it would only lead to an increase in private vehicles and thus further deterioration of the city's road network.  A better approach would have been to retire old  autos and grant new licenses to energy efficient ones and those that can take in more than 3 passengers and ply specific routes.  This would have eased the burden on the resource constrained public system and also kept a number of private vehicles off the roads.

The market's solution of  putting a car in the hands of millions of Indians might be a dream come true for its investors, but it is a nightmare for the country.  What we need is an efficient transportations solution at an aggregate level not a micro-answer to middle class dreams. The truth is bitter - by the time millions of Indians climbed the economic ladder to be able to afford a car, the world has changed. This truth must be accepted and sacrifices have to be made to achieve better growth. One maybe able to afford the Nano, but may never be able to commute to work, given oil's never ending rise. 

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