Thursday, August 24, 2006

Is The Small Car Project A Big Dream?

For several reasons, all eyes are now set on the small car project of Tatas coming up at Singur, West Bengal. Firstly, the project envisages production of small cars to be priced below Rupees one lakh ($2200 approximately!). Secondly, Tatas who already enjoy brand images for cars and trucks being manufactured in Jamshedpur and Pune have ventured to establish manufacturing facilities for the small car in the state of West Bengal. Because of labour unrest and lack of infrastructural facilities, the state in 1980s and 1990s had lost its top rank among the industrialized states of India. But there has been a resurrection of Bengal as claimed by the Marxist-led government. Nevertheless some investors are still shying away from the state.
The project may appear to be a pigmy by American standards but it is dear to Tatas, the people of West Bengal and whole of India. The car manufacturing capacity in numbers, its unbelievable price and the car size – all are really small. Only 200,000 cars will be made from the year 2008 onwards and may reach 500,000 by the year 2012. As of now the car price has been pegged at ‘below Rupees one lakh’. One has to understand the psychology of middle class customers in India to appreciate the compulsion to keep the price below the one lakh barrier. Today every Indian first dreams to become a ‘lakhpati’ (one who is worth more than one lakh) and then a ‘crorepati’ (one who is worth more than ten million rupees or $220000). This is not the first time that such a catchy price tag has been fixed for small cars. As a matter of fact, Sanjay Gandhi – the younger son of late Indira Gandhi was mad about his small car project for which work was started at Gurgaon. Before the project completion, he died and the public sector company Maruti Udyog in collaboration with Japanese Suzuki carried on from where he had left. To begin with, the car price was kept far below one lakh. Maruti cars soon became synonym for cheap, efficient small cars in India. Later other international car manufacturers from USA, Europe and Japan joined the bandwagon to set up joint ventures.
The small car project has made tardy progress so far. The farmers whose land will be acquired are putting stiff resistance. But this is a prestigious project for both West Bengal government as well as Tatas. There is one bigger challenge for Tatas to keep the price tag unchanged. All the input costs are rising particularly of steel and non-ferrous metals. At the same time, Tatas would not like to backtrack as they are trusted for their commitments.
Meanwhile Tatas have announced that they have plans to accommodate about 100 ‘tier-I’ category vendors at the vendor park to be set up on a 300 acre plot at Singur. Sceptics may still doubt about the viability of the project. But going by their track records, Tatas will leave no stone unturned before throwing in the towel so early. Is it not?

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