Indian official: World should follow Tata model

9/7/2008

When Indian automaker Tata Motors unveiled its new Nano passenger car to the public in mid-January, the tiny, ultra-cheap vehicle generated a buzz around the world. The international automobile industry reacted with a mix of amazement and disbelief that Tata was able to produce a car so small for such a measly price (about $2,500), while environmental critics predicted the Nano would lead to mounting air and pollution problems on India's already clogged roads.

Yet, Kapil Sibal, the minister of science and technology and Earth sciences for the government of India, believes that the Nano — which Tata has been dubbed the “People’s Car” — represents what is possible when industry combines human ingenuity with science and technology. Sibal outlined this in keynote remarks to an intimate gathering of Indian and American business officials and investors June 13 at the Taj Hotel in downtown Boston.

Dubbed “Investing in America: The India Story,” the event — which was sponsored by the U.S.-India Business Council and the Federation of Indian Chambers of Commerce and Industry — showcased contributions made by Indian companies to the U.S. economy, such as job creation, new business strategies undertaken by Indian companies operating in the United States and management practices exchanged between the two nations.

The Nano “is small, affordable and excellent, and that combination is lethal. That’s why after the Nano got onto the road, every other automobile company said, ‘We want to build a small car,’ but it was [Tata Motors chairman] Ratan Tata’s dream, and he did it,” Sibal told approximately 40 people during his keynote speech.

“I think the reason why I mention all of this is if the global community moves forward, it has to deliver on all of these things — it has to deliver to ordinary people the best possible product at the lowest price,” Sibal added. “So, in a sense, the Nano represents the future, and the way the global community is moving in the future.”

Sibal said this approach is already evident in the U.S. biotechnology sector, where research and development costs routinely soar into the hundreds of millions of dollars, and most companies are funded by deep-pocketed venture capitalists. “What are the biotech companies in the United States doing? They’re saying, ‘Let’s move ahead of the knowledge, so even if we spend a billion dollars, we still have a market,’” Sibal said. “On the other hand, they’ve realized they cannot compete unless they bring down their prices; many biotech companies are acquiring firms in Eastern Europe because they are less costly there.

“The whole idea is how will you compete in the global economy of the future?” Sibal added. “The best product at the lowest price — that’s the direction that the biotech sector is moving in, and big biotech firms in India are doing joint ventures around the world —not for the purpose of doing joint ventures but so that they can do drug development, which is very expensive.”

By acquiring biotech firms in foreign markets like Eastern Europe, Sibal said, larger companies in India are able to develop and manufacture new drugs for a much smaller investment than normally would be required. “We can use that intellectual property for the purpose of manufacturing drugs,” he said. “Using the economy of scale, we can manufacture drugs for one-third less the price than normal — you can produce the same quality drug, serve a larger market and make a profit.”

Sibal said strategic business moves that aim to cut costs and boost efficiency — such as mergers and acquisitions, joint ventures and investments in foreign markets — will help shape the global marketplace in the coming years. He warned that businesses that fail to recognize this are unlikely to survive.

“People around the world are going to have to change their business model — businesses cannot survive in the global economy unless they are able to relocate or enter new markets, or enter into joint ventures and get the best possible price,” he said. “What we need to do is tell ourselves that if we want [to get] in to the global economy and [to] survive, then it is important for us to change our business model.”

India is viewed as one of the hottest markets by foreign investors: The country boasts the world’s fourth-largest gross domestic product and economic growth has averaged nearly nine percent for the last two years — second only to China. Yet, for all of its growth and modernization, India remains an emerging economy, and the country’s infrastructure deficit is so critical that many economists and academics agree it prevents the country from achieving its true economic potential.

India is home to more than three million miles of paved roadways — the second-largest network of roads in the world, behind the United States — but decades of underinvestment and political inertia has led to their decline. The country is also prone to widespread power outages and lacks a reliable water supply.

Sibal said India must deal with infrastructure problems if it wants to achieve its true economic potential. “India operates at two levels: There’s the six-lane highway, where India moves very fast, and then there’s the road, which more than 600 million people use everyday. We need to convert that potted road into the six-lane highway,” he said. “But we can’t do it alone — it’s not possible to do alone.”

Sibal added that India’s massive and incredibly diverse population holds tremendous potential for foreign companies, and that the country’s diversity has made its way around the world, particularly the United States, where ethnic groups from all across India can be found throughout the country.

“The diversity of India, if it is a success, can replicate itself around the world,” Sibal said. “So in a sense, the success of India is at the heart of civilization, for if India fails, the consequences on the global community are monumental. We have a stake in the demographic structure that is the future of the world.”

Sibal concluded his speech with a warning about the impact of rising energy prices on the global economy. He warned that in nations such as the United States, where most households own a car and many people drive long distances to their jobs or simply to buy groceries, suburban living will be a thing of the past. “The 21st century has challenges that the 20th century did not have, and these challenges are entirely new. The solutions that we used for the challenges of the 20th century are not applicable anymore,” Sibal said. “The fact of the matter is that if you go to any big city in the United States, people live many [miles] away from their jobs. You can’t change that — that’s how you built your cities — but it’s unsustainable. With oil priced at more than $130 a barrel, you can’t sustain that anymore.

“The [carbon-dioxide] footprint is 120 metric tons in America; we need to think differently and act differently, and the only way that we can do that is if we work together,” Sibal said. “The energy challenge is the biggest challenge that we will face…That’s what we need to think about: how are we going to move together? The two largest democracies of the world must come together and meet these challenges.”