Monday, April 12, 2010

Nano - I told you so

A couple of Nano cars have caught fire and I just feel like I have to pint out this long article by me an year back. The article argues that by taking the success or failure of Nano as a product AWAY from Tata or the market; and instead subsidizng the product heavily with taxpayer money as Gujarat does - is actually a violation of sound economic policy.
Let me quote from my article:

There are people who argue that job creation is primary goal. Some guy even calculated that in 10 years the government of Gujarat would get money back from the Nano plant because of tax payments by employees. But there is a vital flaw in such arguments:
What if the Nano is a failure?
Let us say that some design flaws make Nano a failure. Can the Gujarat government assure that the Nano will be a success? They can't - the factory is not even in their control. They have not studied the market or discussed the quality procedures or the thousand other things that can go wrong with a product. By tying themselves to a single businessman's product, the government has committed taxpayer money for something it has no capability to ensure or manage.
Instead sound economic theory requires that the Gujarat government create conditions for manufacturers in general and then wait for business to flourish.

I am not saying that the Nano WILL be a failure. Given the amount of propaganda surrounding it, Tata has ensured its sales. But, for Gujarat to have tied itself with that car and committing taxpayer money to a product that they have no control over is WRONG.
It means individual profits and socialized risk. That is what it is.

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