Bill Emmott - International Author & Adviser

Article

India arrives as a manufacturing superpower
Corriere della Sera - January 15th 2008

Lakes full of ink have been spilled about the unveiling in India on January 10th by Tata Motors of its new, super-cheap car. People have pondered whether the 1,700 Euro car, called the Tata Nano, will worsen global warming. People have looked back at previous small cars, such as the Ford Model T, the Fiat 500 and the British Leyland Mini, and compared the innovations in those cars with those achieved by Tata. But what has been missed is the true significance of Tata Motors’ new car. This is that it marks the arrival of India as a manufacturing superpower, to rival China and of course the West.

            Since the turn of the century, analysis of the economic rise of China and India has been based on a simple paradigm: that China is growing by emphasising manufacturing while India is doing so by emphasising services. The western view of India is dominated by the cyber-cities of Bangalore and Hyderabad, and by the new giant Indian outsourcing companies of Wipro, Infosys and another Tata firm, Tata Consulting Services.

            What the Tata Nano shows, however, is that this is out of date. It is history. India has lower wages than China and so cheaper labour costs. It has also been much slower to build roads and to modernise airports and seaports, so transport costs for its manufacturers have been much higher than in China. That is why manufacturing has been held back in India, while it was rocketing ahead in China. In India, only about one-third of GDP comes from industry, and more than half from services; in China, the proportions are the other way around.

            But that is now changing. Roads are at last being built. Sea-ports have been modernised, using private management and investment. Airports are being privatised and rebuilt. Domestic consumption, and so local demand for manufactures, is growing rapidly. As a result, Indian manufacturing output has been growing faster than services in each of the past two years.

            The car industry will be at the heart of Indian manufacturing growth during the next decade. Global firms are investing there: last week, Ford announced a $500m investment in car-making in India, joining other firms such as General Motors, Renault, Suzuki and Hyundai. That is true in China too, where the car market has grown faster and sooner than in India. But while in China the local firms are still well below world class, in India there are now world-class car makers emerging.

            Tata Motors is top of that list. The design and manufacturing achievement represented by the Tata Nano should not be underestimated. It is half the price of its closest existing rival in the Indian market, which is made by a joint venture between Maruti of India and Suzuki of Japan. Like the Ford Model T and the Fiat 500, it will make sense only if it is produced in very large quantities, as a mass-market car, which will also mean that Tata will need to export in order to build up its scale of production.

            At the same time, Tata Motors is negotiating to buy two luxury car brands: Land Rover and Jaguar, both famous British names currently owned by Ford. So, all of a sudden, the world will have a new car-maker, competing in all segments of the market, from ultra-cheap to luxury. That will also stimulate Indian investment in all the other industries associated with cars, including components, design, steel and road-building itself.

            Much of the time, 2008 will look like being the year of China, thanks to the Beijing Olympics in August. But the Tata Nano suggests it will also be a year that is significant for India too: the year when it truly arrives in global consciousness as a manufacturing superpower.


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