On The Tata Nano... And A Car For Every Indian

As a committed free trader, that too of the unilateral variety, I find little to cheer about the launch of the Tata Nano, the world’s cheapest car, with its 623 cc engine. To me it sounds too much like “import substitution industrialization” – the term that was used by my Economics professors in college to describe what we now call “cronyism.”

After all, used car imports will deliver cheaper cars with bigger engines to our people. 623 cc means no air-conditioner. It means the impossibility of carrying a family of 4 uphill – even over a flyover. Note that Tata trucks are all underpowered and overloaded. The Nano will be more of the same. I advocate duty-free imports of used cars, trucks and buses.

As Milton Friedman noted on his visit to Bombay in the early 60s, a second-hand Buick was selling there for over 2000 US dollars. And he had himself sold the same model in the USA for just 22 dollars!

To quote Friedman:

“Automobiles provide a striking example of the economic waste produced by this [import substitution] policy. In the name of restricting ‘luxuries’ to ‘save foreign exchange’, the importation of automobiles from abroad is in effect prohibited, whether these are second-hand or new. But at the same time, new automobiles, copies of foreign makes, are being produced at very high cost in small runs under extremely uneconomic conditions at four different plants in India. These are available by one channel or another for the ‘luxury’ consumption it is said to be desirable to suppress. Many of their components are imported, and many of those [components] made in India use indirectly imported materials. The result is that not only is the total cost of the amount of motor transportation actually produced multiplied manifold, but even the foreign exchange cost is probably larger.

The results are most striking in the market for second-hand cars. A car that I sold for $22 before I left the US (a 1950 Buick)was being quoted in Bombay when I was there at Rs 7,500 to Rs 10,000 or $ 1,500 at the official exchange rate and over $ 2,000 at the free market rate. Clearly, the sensible and cheap way for India to get automobile transportation is to import second-hand cars and trucks from abroad. Aside from the direct saving through getting cars cheap, this would have the great indirect advantage of promoting technical literacy, using the abundant manpower resources of India, and conserving capital. But India in effect says, ‘We are too poor to buy second-hand motor vehicles, we must buy new ones’!”

Note that the Tata Nano relies on Bosch fuel injection: almost all essential components are imported.

Apart from the nonsensonomics of banning used car imports, we Indians must also note that there is a great deal of nonsenspolitics involved in the Nano. Recall Singur and the misuse of “eminent domain” for the Tatas. And recall that it is Narendra Modi who has finally picked up the Nano project.

An interesting and thoughtful article by Shiv Visvanathan compares Sanjay Gandhi, Narendra Modi and Hitler. All three supported a “people’s car.” And all three used violence as their political means.

I have written a monograph on automobiles for Liberty Institute. It envisions a country where each citizen has a car. It champions duty-free used car imports. It argues that the best automobile policy is no policy – let trade and markets, and the consumer, decide. Let the consumer be the king, not the minister or his crony. The paper, entitled “Four Wheels For All: The Case for the Rapid Automobilization of India” can be accessed here.

Enjoy the read.