Sunday, January 20, 2008

Nano Thoughts

Since no one outside Tata Motors has so far driven the Nano one can surmise that looks, features and above all, the price have carried the day. Ride, handling, pick-up and reliability remain largely unknown quantities so far. A lesser mortal than Ratan Tata would probably have been castigated for the rather disingenuous way (calling it the dealers’ price and excluding commission, transport and a host of other charges) of keeping the price at Rs. 100,000. It is likely to cost Rs. 130,000-150,000 for the very basic, no-frills variant.

The car may be most suitable for relatively slow-moving, intra-city travel though that is unlikely to deter people from taking it on highways. It may also be more of a threat to the auto-rickshaw rather than to the 2-wheeler, given the relative price and running costs.

Reactions have been expectedly laudatory though the more sensible pieces (see here for S Aiyar’s take and here for D Mohan’s) situate the Nano and other cars – both big and small – within the larger issues of pollution, congestion and economics of transport systems.

Dinesh Mohan argues that the Nano is not as cheap as it seems. That is true but lots of people buy and keep cars for weekend use, for family outings and to take it occasionally to the office and not for daily commuting. Hence, they keep their monthly expenses far lower than what he assumes. And a new car has a premium all of its own. So the Nano may sell (as do other cars) but not run!!!

People do end up paying a lot in fixed (opportunity) costs (the unavoidable interest costs, depreciation, insurance) but economise on the variable. Add convenience and flexibility to the status value. Think of the abysmal public transport and the less than satisfactory cabs and auto-rickshaws and the small car is a winner.

So car ownership should go up but lots of car owners will continue to use 2-wheelers, public transport and company-provided transport for daily commutes.

Authors of both articles cited above make several useful and pertinent suggestions about pricing of fuel, parking space and charges for the several externalities that cars (not only the Nano) cause in general.

Mr Aiyar argues that free or near free parking is the biggest and the least visible subsidy accruing to car owners. He rightly argues for hefty parking fees.

He mentions that in parts of Tokyo one needs to own parking space as pre-requisite to owning a car. A similar phenomenon, albeit in a small way, is underway in India as well, though largely unappreciated at the present.

In apartment complexes (the so-called gated communities) that are now sprouting all over India one has to purchase slots for car parking. These charges are usually explicit but sometimes implicitly built into the price of the apartment. Covered parking costs twice as much as open parking and even the latter runs into tens or hundreds of thousands of rupees. So people already pay what adds a considerable amount to the price of a car. Private builders recognise all too well the opportunity cost of land.

On private individual residences land is allocated to building garages but of course, most people continue to park for free on public land.

The true cost of owning a vehicle is thus more than usually perceived and is rising.

However, Mr. Aiyar is right to point out the absurd practice of charging low parking fee or providing it free in the most heavily used parts of our largest cities. Raising parking fee is one option but since such parking contracts are frequently auctioned it would be sensible to lift the cap on parking charges and let contractors charge as much as they can. The public authorities should design the auction process to capture a large part of the economic rent that would accrue.

Public parking is not the only place where parking is free. Offices – both government and private - provide free parking as a perk. In fact, till sometime back parking used to be free even to visitors though this is now reduced due to space constraints. Parking even for employees of such offices spills over to public roads and even footpaths.

In private offices the usual practice, apart from reservations for the seniors, is a first-come, first served system which can degenerate into a free for all. There is no reason why fee for parking slots can’t be charged on parking places within private offices. However, a system by rotation or a lottery may be more palatable, though not necessarily the most efficient. However, the important thing is not to permit encroachment on public spaces. And the same applies to space in government offices and for that matter educational institutions and even non-profits.

Swami Aiyar wants the revenue collected from fees and charges to pay, among things, for elevated or underground mass transport systems. However, I am not so sanguine about this. As Prof. Mohan has argued at many places (see here as an illustration) such systems are very expensive and frequently fail to meet their own projections about revenues, profitability and number of passengers carried. They need enormous subsidies of their own. His suggestion on mass rapid transit using buses deserves more consideration and support.

There remains the matter of what to do with charges collected for parking in private offices and the government. If such monies were used for staff welfare – a monthly bash – one can expect support and buy–in from those who don’t bring cars to the office.

More Unintended Consequences

Stephen Dubner and Steve Levitt write about how landowners respond to well-intentioned policies to save endangered species and their habitat by clearing land and thus making it unsuitable for the species in question.

Do we have something similar happening closer home?

One possibility is what happened with sandalwood (Santalum album).

Since for all practical purposes the government owns all trees, controls the manner of its harvesting and puts onerous reporting burden on whose land it grows the response of people has been not to let saplings thrive, in fact uproot them as soon as possible.

An added negative, of course, is that the criminals too covet the valuable trees.

The consequence is that sandalwood has nearly disappeared from private land and on public land it survives precariously.

In most cities of India cutting a tree (irrespective of the species) even on private land requires justification and prior permission. Those who violate the law face prosecution. So people cut trees on the sly, on weekends and on national holidays or let the tree die (pour cement around it or not take care of a parasite attack). I also wonder if people increasingly are reluctant to plant trees instead making do with shrubs and bamboos and creepers. They get the greenery without the hassle.