The flutter created by Nano, Tata’s new low-cost car, will not subside soon. This car, costing about one lakh rupees (or $ 2,500), is half the cost of the next cheapest Chinese car. It reportedly meets benchmarks of safety, fuel-efficiency, and emission norms. Sceptics argue that only time will tell if all these claims are valid. However, the widespread enthusiasm accorded to the car represents a new middle-class euphoria.

The middle class perceives a sudden sense of empowerment, in which steadily rising incomes bring the fruits of development within grasp. The vast majority seeks to have a car for safety, status, respectability. Nano helps them make this psychological transition.

We have been told by C.K. Prahlad that there is enormous wealth at the bottom of the pyramid. Nano is one more example. The rapidly increasing teledensity in semi-urban and rural areas is another. I believe that embracing innovative, low-cost services have wider benefits for the economy, for example, low-cost housing, affordable educational hubs, reliable health care facilities. There are many affirmative actions outlined in the XIth Five Year Plan, which, if implemented, can kindle the ingenuity of the corporate sector.

Nano also provides policy makers an opportunity to correct some manifest distortions.

First and foremost, to put in place an ‘Integrated Energy Policy.’ Continued subsidisation of fossil-fuel consumption has multiple distortions. The massive under-recoveries from sale of petroleum products by oil companies is clearly iniquitous. The subsidies benefit the affluent and compress resources available for social and physical infrastructure. No doubt, the petroleum sector has constituted an acceptably large percentage of indirect taxes. Rationalising the tax structure for petroleum and related products is an independent exercise that cannot be linked with the broader principle of economic costing for multiple forms of energy.

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