Automobiles Can Banish Unemployment and Poverty

The Sindur controversy highlights a clash of perceptions. Firstly it tries to resist the increasing trend of marginal agriculturalists leaving rural areas for better urban opportunities. Secondly it reveals the old socialist perception that cars are toys of the elite and do not deserve encouragement.

The Nano is however belatedly making India's economists, planners and politicians realize that the automotive Industry is a huge driver of employment and growth. According to Japan Automobile Manufacturer's Association, automobiles contribute to 21% of Japan’s GDP and are the main engine of its economic growth employing 7.3 million people. According to Society of Indian Automobile Manufacturers, the industry already contributes to nearly 12% of India's GDP.

The impact on employment can be seen from the example of Maruti that now directly employs just 5,500 people and plans to make 700,000 cars this year. But the 6,000 trucks needed to deliver them create employment for about 24,000 people. Their 1,500 dealers employ over 75,000 people. Maruti however makes only 20% of the car. They make no steel, castings, forgings, tyres, batteries, electricals, brakes, glass and components. The employment by the vendors, just dedicated to Maruti cars, must exceed 200,000. India’s trucks employ 15 million people as compared to just 2 million by the railways.

Put together, all the makers of Indian cars, trucks, tractors, and 2-wheelers may generate some 3,000,000 salaried jobs. But these salaries create another huge multiplier effect of tertiary employment for the millions who supply these salaried employees with food, clothing, shelter, education, medical facilities, entertainment, etc.

Anyone who has seen the sudden explosion of new townships like Surajpur, near the Honda, Daewoo, Yamaha and Honda plants, Sriperumbudur, near Hyundai's plant or Malaimaraipur near Ford's plant, Bidadi near the Toyota plant can see the quick impact automobiles have on employment and economic growth. Rather few jobs initially went to these towns because modern auto plants wanted educated engineers not skilled workers. But local teashops became hotels and hotels expanded into housing estates. Schools, cinemas, video parlours, groceries, fast food outlets and real estate developers multiplied. Doctors, architects, interior decorators and caterers streamed in. Unlettered locals prospered as masons, carpenters, mechanics and contractors. Prosperity quickly created even more prosperity.

And the impact spreads wider. The people who own and run India's 50 million two-wheelers, 12 million cars and some 8 million trucks and buses need many millions of people to service them in every small town. And these millions of local mechanics having learned technical skills and to work with their hands will never be unemployed. Academic education does not assure jobs but work with one's hands does.

India does not have too many cars. According to the World Bank India today has 12 cars per 1000 people as compared to 19 in Pakistan, 64 in Malaysia, 67 in Turkey, 426 in UK, 543 in Japan and 765 in USA,. So car density is a virtual index of economic prosperity. But more vehicles will need many more highways and much wider city roads and more parking spaces including parking in the basements of all new commercial and residential buildings. With rapid transport new satellite towns can be built near existing ones to decongest them. More highway police will be needed to manage the growing numbers. All these are big job generators.

India is not just a poor country but also a country with a horribly hot and dusty climate where the people should be allowed the comfort and efficiencies of motorized transport instead of the agony of bicycles and bullock carts. Few people realize just how heavily India's autos are taxed. The combined impact of 40% Modvat on components, 16 -24% excise duties, 12% local sales taxes plus octroi in some cities has a cascade effect to almost double the manufacturing costs of indigenous vehicles. In most other countries, there is just one tax like 15% VAT in EU and USA, 8% in Korea and 8 - 16% in Japan (according to size). With similar taxes, A Maruti 800 would probably cost about Rs. 1.20 Lakhs, a Honda City about 4 Lakhs to say nothing about two wheelers and transport vehicles. If this happened, India's automobiles would boom with a huge impact on employment and economic growth.

India’s planners had previously been so obsessed by the vision of automobiles being elitist that they crippled one the greatest generators of employment and economic growth. China who had earlier been a great crusader for socialism learned two decades ago that many objects of elitist consumption were good for the people. While India restricted production and levied huge taxes on bikes, cars, telephones, TV’s, soft drinks, white goods and mobile phones, China let them lead the way to a huge economic revolution. China did not feel that its independence or security was threatened by entry of any multinational. They considered the idea of a foreign company being capable of challenging the great Chinese dragon or its culture as laughable.

But India’s politicians and their bureaucratic `running dogs’, as the Chinese would have put it, had such a love affair with poverty that poverty is what they perpetuated. Taxes instead of being a necessary resource for economic development were greedily sought for creating a bloated bureaucracy and lining political pockets.

Automobiles drove America to prosperity and led the recovery of Germany, Japan and Korea after their wars. Hopefully our planners will belatedly see the light and lead India to a new prosperity. Automobiles transport 80% of all goods and 85% of passengers adding up to some 200 million people who are using the cars, 2-wheelers, buses and trucks every day. Perhaps the next election slogan should be: Tax ghatao, gaari chalao, unatti badhao.