The car industry has very strong linkages with other sectors of the economy. It forms important backward linkages with industries like auto components, steel, rubber and tyres which contribute important inputs in the manufacturing of a car. The industry also creates a number of forward linkages — think car dealerships, service centres, the market for auto loans and car finance. By itself and through these important linkages the auto industry, perhaps more than any other single industrial sector, has the biggest potential to contribute a substantial part of GDP, generate mass employment and develop important skills in innovation and engineering.

 It is hardly surprising then that the production of cars on a mass scale has historically been the first sign of an emerging industrial powerhouse. The rollout of Henry Ford’s Model T in the early twentieth century signalled the arrival of the US as a major industrial power poised to overtake the old economies of Europe, particularly Britain. Later, and though it was accompanied by horrible political and social collateral implications, the production of the Volkswagen heralded the rise of Germany as an industrial centre. After World War II, the Japanese began their competition for the premier industrial nation with the US following the growth of auto companies like Toyota and Honda. And among the late industrialisers from Asia, Korea — a country poorer than India in the 1950s — announced its arrival on the world stage in the 1980s with names like Hyundai, Kia and Daewoo. Now, most recently, in the late 1990s and 2000s, China has witnessed a rapid expansion of a mass automobile market.

The state of the mass auto industry also helps identify nations in industrial decline. Britain lost most of its car manufacturing industry by the 1990s and is now a services driven economy without much manufacturing. Italy has also witnessed a decline of its auto industry typified by the near bankrupt Fiat. And now the US auto sector is in great strife, perhaps signalling the beginning of the slow decline of US manufacturing.

The mass auto industry, apart from being a signal of rise and decline of industrial power can also be the best symbol of industrial stagnation. No country typifies this more than India. Jawharlal Nehru and his group of economic planners in the late 1940s and early 1950s got many things wrong, but none perhaps as badly wrong as the decision to ignore automobiles as a sector with great industrial potential. Their view on automobiles was refracted through their lens of socialism — automobiles were considered a luxury item, not worthy even of a state led enterprise. So the sector, for the better part of four decades was left to a tightly controlled private sector — with severe limits on shat could be produced, in what numbers and with what technology.

The industry, instead of being a driver of the economy, became the most potent and visible symbol of the disastrous licence-permit raj. It brought out the worst combination of bad government policy and protected private sector enterprise which delivered profit to both government and the private players concerned, but much misery to the masses — few cars, expensive cars and poor quality — socialism in perverse: in policy but not in outcome. The Nano, born out of private enterprise in the context of a fiercely competitive and globalised market, will finally reverse that.

The Nano will also do for the Indian car industry what the Maruti 800 could never fully achieve — it will help the car industry tap into the vast market which currently consists of millions of two wheeler owners. Interestingly, cars account for just 17 per cent of the total market for vehicles in India — two wheelers account for more than 70 per cent. Thus, the Nano has the potential to double and triple Maruti’s contribution in fairly quick time and make the Indian car industry truly mass produced and consumed. At the moment, the Indian car industry produces just under 2 million vehicles a year, which is low by global standards.

It is also, because of its low price tag, a car for the difficult economic times we live in. It will probably be the only indigenously developed Indian car which will have a global brand — though with all the coverage it has received, Nano is already a global brand. One wonders, though, how Ratan Tata now views his costly takeover of Jaguar and Land Rover. They are surely brands of the past from industrial powers in decline while Nano and Tata are brands for the future from a country on the rise.

dhiraj.nayyar@expressindia.com