India's Cheap Car Stalls — A Metaphor for the Country’s Growth Challenges?

The Financial Times recently featured a captivating story that outlines some of India's larger challenges as it attempts to keep up its economic growth rates. The piece starts by discussing why Tata's now infamous Nano, the $2,200 car, has stalled. According to the article, "if ever there were a symbol of India's ambitions to become a modern nation, it would surely be the Nano, the tiny car with the even tinier price-tag … The Nano has run into trouble because of a messy tussle over land with dispossessed farmers. But the struggle to determine whether West Bengal's paddy fields yield up crops or cars is symbolic of something much bigger: the difficulty India has in emulating the manufacturing-led models of countries that have hauled themselves from poverty."

India's challenge is not without precedent. The FT describes how Britain and Korea have gone through similar transformations from rural agrarian societies to industrialized nations -- and how China is going through such a shift today. Unfortunately, the services industry will never be enough to absorb rural job losses. The story notes that "to truly shine, India will need millions, perhaps tens of millions, more manufacturing jobs." But this will be easier said than done in a country known for more red tape than just about any other place on the planet. Considering that you "often need up to 100 permits, chits and slips to set up a factory" and that "rigid labour laws make it hard to fire workers" it's unlikely we'll see India become an industrial powerhouse overnight. It's a sorry legacy that India inherited the imperial British passion for red tape. For other than the massive infrastructure challenges that India faces, it's probably the single biggest thing holding the country back.

-Jason Busch

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