The “Muto” Implications of the Tata Nano

When Tata Motors announced at the beginning of 2007 that they had successfully designed a car that would cost a customer slightly more than US$2,000, India swelled with pride and excitement about its engineering capabilities, its growing and aspirational middle class, and its ascension as an economic power. Although the Tata Nano is entirely an Indian product, the folks at corporate were perhaps trying to ride the coattails of another “Nano,” designed 15,000 miles away in Cupertino, California. By that time, Apple’s iPod Nano and other sister products had managed to create a slick, disruptive yet affordable electronic device that compressed multimedia files into a new format, thereby pushing more music and art into the hands of more people around the world. Just as Apple decided what people wanted and then squished it into the palm of your hand, Tata holds similar dreams with its new wheels.

But, it is no longer 2007. Back then, the world economy was surging (the U.S. Dow was over 12,000 and surged all year). The “Indian Growth Story” was reaping the benefits of its well-publicized global publicilty plan launched at Davos a few years earlier. Manmahon Singh and the Congress were only half-way through their term. Now, two years later, the global economy has shrunk, terrorism is mutating in dangerous ways in South Asia, the Indian economy, though still strong, is growing at slower rates, and the Congress party faces elections this May. And, one campaign issue that is sure to catch politicians will be directly related to the proliferation of the Nano and its effects on society. For something so small (“nano” in Hindia), it could create big (or, “muto”) headaches.

Today’s Indian consumer — and therefore the Indian engineer — still aspires to own (and design) products with western roots. Despite marketing aimed to persuade the contrary, “buying Indian,” especially in today’s economy, is trumped by the race to build essentials cheaply and reliably. The motor vehicle, popularized by the masses in the U.S.A., remains an elusive consumer good for many hundreds of millions in India, not to mention every corner of the developing world. A decade ago, those forgotten consumers couldn’t realistically get their hands on any reliable wheels; later this year, the Nano will be spread throughout India, perhaps parts of Asia, and one has to wonder how punitive the tariffs levied by the U.S. trade representatives will be.

Putting aside exports for this post, let’s conservatively assume that it will only be sold in India, and that at under $3,000, hundreds of thousands and maybe more consumers will become new car owners. As the New York Times Green Inc blog mused yesterday, would this be a “boon or bane”? Let’s quickly take stock of the arguments.

Those opposed to Nano proliferation argue that (1) there aren’t enough roads to support the numbers of increases vehicles, (2) the cars will release more GHG into the atmosphere, and (3) increased car ownership will stall weak yet ongoing efforts to bolster various forms of public transportation. On the other side, the pro-Nanos believe that this new vehicle will (1) boost the country’s economy by creating more dealerships and a repair network, (2) strengthen its export base, and (3) perhaps force the hand of an election-year government to promise more federal funds to build the roads that the Nano needs to drive on. As Ratan Tata once said, “I can build cars. I can’t build roads.”

The Indian government will have to react by balancing the competing arguments above, probably by slapping a tax on the sale (and even petrol) to help pay for the roads and also creating incentives for the company to export the car to international markets. But, the government and regulators can’t slap too hard, partly because they enabled Tata to create this engineering feat and also because, as iconic Indian brands go, Tata is the standard-bearer, leaps and bounds over the next tier of powerful international conglomerates. This is not Honda or Hyundia, other aspirational automobile brands from Asia that have made significant imprints on the Asian market. This product — the Tata Nano — was conceived in, designed in, manufactured in India. It will have to sold en masse in India, too, because everyone is going to want one — or maybe two or three.

As the little Nanos begin to roll out of factories in Gujarat and other places scattered across India, the world will watch to see how car ownership, traffic, and the country’s automobile industry swell. I can already picture streams of eager consumers, patiently waiting in long lines to sign up for a Tata Nano, as if they were finding a way to beat the heat by going to see the hottest film release of the moment. Tata won’t turn away these customers because of any public concerns, and we’ll then have Nano owners, many of them first-time car owners, salivating at the mouth with joy and excitement, getting behind the wheel and driving wherever they damn well please, whether the roads are paved or not.