Sunday, June 10, 2018

Will Bengali Farmers Doom Tata's One Lakh Car?

I didn't particularly lakh hearing this news, but it deserves to be noted by a wider audience. Ratan Tata's much-ballyhooed "One Lakh Car" priced at the equivalent of $2500 is supposed to set a new benchmark in automotive affordability in fast-growing India. However, like that other consumer product famously built to a price point, the OLPC "$100 laptop," the Tata car is running into some difficulties. Unlike the OLPC, here's hoping that the car fares better. Unlike the product launch in which they played Richard Strauss's "Also Sprach Zarathustra," maybe the appropriate soundtrack for the production run of the $2500 car is, er, "Let's Wait Awhile."

Indian farmers in the Bengali state have protested against the provincial government allegedly misappropriating their farmland. Interestingly, Bengali state government is Communist-led. Given that similar accusations of expropriation are rife in China, I am led to believe that socialist regimes have more relaxed atitudes towards property rights than elsewhere. In any event, legal wranglings threaten to hold up the rollout of the "One Lakh Car." Indeed, Tata--owner of the famous British marques Jaguar and Land Rover--may just give up on producing cars in the state altogether and start anew elsewhere in India. From the Times of London:
The high-profile launch of the world's cheapest car - the £1,250 Tata Nano - was in jeopardy last night after tens of thousands of protesters gathered at the factory being built to produce the vehicle, complaining that the land had been taken illegally from small farmers. Demonstrators blocked roads leading to the plant at Singur, about 20 miles from Calcutta in the northern Indian state of West Bengal. About 4,000 riot police were drafted in to protect the factory, which is due to start producing the Nano this autumn. Security was tight and water cannons were on standby amid fears that the protests could turn violent. Activists at Singur said that they would call off their protest only if the state government handed back about 400 acres to farmers - a move that could derail the Nano project. Tensions in the area earmarked for the Nano factory have been simmering for two years amid allegations that the communist-led state government of West Bengal had seized land illegally from local small farmers. Mamata Banerjee, the head of the main opposition Trinamool Congress party in West Bengal, called for an indefinite siege of the factory. Farmers have not accepted any compensation. Kajal Das, the wife of a farmer who lost land to the project, said: “We have gathered today to get back our land. Money cannot compensate our loss.” The demonstrations threaten to ruin the commercial debut of the Nano, one of the most closely watched launches in the car industry in decades. At its unveiling in January, the Nano was lauded as marking a revolution in the industry, allowing millions in India's emerging middle classes to buy a car for the first time. On Friday, Ratan Tata, the Tata chief executive, said that he was ready to abandon the Singur plant if the long-running series of demonstrations did not abate. Such a decision would involve the company writing off up to $350 million (£189 million) in investment. Already there are fears that the car's ultra-low-cost business model could be scrambled by sharp increases in raw materials and that Tata will make heavy losses on the first batch of Nanos sold. Indian analysts forecast that Tata will need to produce nearly 400,000 Nanos a year to make a profit, well above a planned initial capacity of 250,000. Any delay to production capacity coming online, therefore, could prove hugely expensive for the conglomerate. Tata has not commented on the margins that it expects to make on the Nano. It has said only that the car will be profitable over the long term. The economics underpinning the Nano make it especially vulnerable to price movements in the commodity markets. Since Tata began to develop the Nano in 2003, raw material costs have increased from about 13 per cent to about 23 per cent of its price before taxes, according to an estimate by Global Insight, the consultants. By contrast, raw materials account for about 7 per cent of the cost of an average American car - or about $1,600, up from about $800 five years ago.
The Economic Times has a host of articles on the Singur siege. Current West Bengal Chief Minister Buddhadeb Bhattacharjee is looking for a compromise on the contested 400 acres with the militant opposition which has called for the Tata factory siege. Meanwhile, Andhra Pradesh's Chief Minister Rajasekara Reddy is saying that his province is more than willing to host the plant. Indeed, many other Indian states would likely be willing to do so. Last, workers at the plant are urging Tata to relocate in West Bengal rather than pull out if push comes to shove. I'd challenge you to find a better definition of "political risk" in the developing world than this episode. Also, it's somewhat perverse how dyed-in-wool communists in China and now India have become so darned...capitalist. These are changing times.

8/26 UPDATE: The ET has an op-ed well-worth reading on the matter. It's a long story, but there are two, not just one, socialist parties in India. There's the Communist Party of India (CPI) and the Communist Party of India - Marxist or CPI(M). Largely due to its control over West Bengal state for 31 years, the CPI(M) has been more visible in Indian politics. A few weeks back, it withdrew support from PM Manmohan Singh's United Progressive Alliance (UPA) over Singh welcoming US help with its nuclear programme. Still, the UPA survived a motion of confidence in rather dramatic fashion at the height of the 2008 WTO mini-ministerial.

Meanwhile, the opponent of Bengal's communist leadership, Mamata Banerjee, is known as a champion for farmers' causes to her supporters and a Luddite to her critics in her efforts to stop the CPI(M)'s industrialization efforts in West Bengal. At stake in the fight between the CPI(M) leadership and Banerjee's Trinamool Congress is the former maintaining an electoral advantage in West Bengal. The ET op-ed suggests Banerjee is wisely using this latest fracas to support her bid when elections in the Indian lower house (Lok Sabha) come around. Highlighting farmers' causes may tilt the electoral balance away from the CPI(M). If farmers have willingly elected Communist leaders well after the demise of the Soviet Union, what's stopping them from eventually putting Banerjee in office to replace the CPI(M)?
Right now, it would perhaps be wrong for anybody to assume that the lady (Banerjee) does not want the Tatas to be in West Bengal, whatever the rhetoric might be. All she is interested in is securing West Bengal’s rural votes and Singur, by far, gives her the best opportunity for that.

The Lok Sabha elections are just a few months away and if she can win the Battle of Singur and not make any unforced errors of her own in the coming months, she would perhaps be successful in weaning away a major portion of CPI(M)’s largest vote bank. If she is able to do that, she has more than a good chance of hounding the Reds out of Writers’ Buildings sometime in future.

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