Very long mail. This time from marketing and macroeconomic point of view.
Please bear with me.

Nano Phenomenon

With Nano Mr. Tata will have the beginner's luck and will also receive
the beginner's flak. Bajaj, who is going to get hit hardest, has
unveiled their version with lukewarm response. It does not take too
much to imagine Maruti, – who has enjoyed monopoly in the economy
model will fight back sooner than later. They enjoy better customer
satisfaction than Tatas do. Chances are Hyundai will not be the
sitting idle either. That makes it quite a crowd by now.

It is difficult to imagine how Tatas will earn any profit after the
dealer's & distributor's commission is paid. Their game plan may be to
achieve 'economies of scale' through volume, as they know that demand
will outstrip supply. Nano is the biggest and will be the most
successful branding exercise in recent times for the group to gain the
'affinity quotient' without spending any money on it. In one
masterstroke of business he has been able to garner moral high ground
by the buying people sickened by the government's inefficiency.

Mr. Tata has almost become champion of socialism overnight in a
country easily taken in by personality cult! From the head honcho of
the respected Tata empire, who basically saw a big opportunity in a
segment to deliver a sure-shot winner in a price sensitive market.
Nano is just another product in the Tata portfolio for the lower end.
For the higher end of the market, he is comfortably poised to own and
offer Jaguar very soon. So let's not get fooled by this neo-liberator
of the masses image. He bought Corus, together with Singapore Airlines
he has pitched for airport modernization. He had the technology,
infrastructure, money and reputation to offer a similar public
transport solution which could have really become a progressive step
for the country. But Ratan is no JRD, – he took the trader's approach
of daily sale and number of units sold. Road space scarcity,
pedestrian safety, fuel bill – these are none of his business.

•••

A lot of families will definitely be very happy for being able to
fulfil their dream of owning a car. And why not? The sight of 'whole
family of five on a scooter' will not disappear in Indian roads
though, – while some of them will be able to move up the social value
chain others will quickly replace them. The motorcycle crowd may
continue to drive their bikes with much machismo. Chances are it is
the big city dwellers who will buy this car (as 2nd/3rd car) more than
the rural folks as a utility vehicle, because road space/parking
scarcity is more acute in big cities. On the other hand, the
aspiration seekers may decide to give thumbs down to Nano as its
identity has been interlinked with price. It will also gain the tag
of a poor man's vehicle.

On the positive side, Nano has a stunning design, promises to be
fuel-efficient and has environmental compliance. Its designers have
managed to give that alluring product appeal which shows cheap price
does not have to be cheap looking. As a designer I am proud of what
the designers/engineers have achieved. But design is hardly ever
detached from larger social reality. Nano and its competitors are the
new mechanical rodents that will eat away our successes in other
sectors.

The demand for fuel will surge to unmanageable proportions. We will
have to earn more foreign exchange through export to foot the
increasing oil bill. The export market is already hit, ironically
stung by the increasing value of the Rupee! The impending American
economic recession (our largest trade partner) will see less demand
for our products and export is going to be hit the hardest. There will
also be less FDI available. So we will have less foreign currency
earning and more spending. If the deficit gets bigger we will have no
option but to borrow money from financial institutions so that Nanos
can ply.

Nano is a gift of free economy ushered in 1991. My gut feel is (hope I
am proven wrong), it is also the beginning of the end of that
liberalization dream in the auto sector as the govt. will have no
option but to impose controls on private fuel consumption. There could
even be fuel rationing. Which will translate into having a car but
remaining immobile. If the price is increased beyond the affordability
of the masses, the rich will continue to drive their SUVs. The point
will be lost.

This fear is not exaggerated. Public memory is too short. In mid
eighties India was hard hit by dissolve of India's big ally and market
– Soviet Union. It was soon followed by the gulf war when the largest
civil evacuation programme (of stranded NRIs of gulf) took place. It
completely drained our forex reserve. We reached such a state that we
had to pawn the country's gold reserve (remember?) as there was no
foreign currency left to run the country for more than seven days. Mr.
Narasimha Rao didn't have any choice but to approach the World Bank
through his finance minister Dr. Manmohan Singh. It agreed to bail
India out with a condition - market liberalization. Thus, contrary to
popular belief, liberalization didn't come to India through 'design'
but by 'default'. And now we are coming a full circle, ironically with
Dr. Singh in the driver's seat.

This time around, if the fuel demand causes a similar scenario, we
have no golden egg in our closet. Therefore, the Nano phenomenon has
the potential of boomeranging a jumbo problem for the country. Even
though at present our foreign currency reserve is quite healthy, let
us not forget the lessons of 1989. The car may be called Nano, but the
larger picture is quite bleak.

Regards

Sagarmoy Paul
NID-PEP-GD-1981-87
THOUGHTSCAPE
New Delhi