Global Economics

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take time for all the manufacturers to add safety features to their cars,” says C.V. Raman, chief general manager for engineering at Maruti Suzuki India, the nation’s largest manufacturer, with about half the market. “We give cus-tomers a choice whether they want a fully loaded car with all the safety fea-tures or a car without those features at a lower cost.”

Activists say India needs to learn from China, which has far more cars yet fewer deaths. There were 186 million ve-hicles on China’s roads at the end of last year and 67,759 deaths, down 7.8 per-cent from a year earlier, according to China’s Ministry of Public Security. The Chinese strategy to improve road safety has included a crackdown on drunk driving as well as increased fines for speeders caught on newly installed road cameras. “China is a different story,’’ Garg says. “There is a strong enforce-ment of strong laws.’’

Meanwhile, a bill to create an agency similar to the U.S. National Highway Traffic Safety Administration died in August. Parliament’s transportation committee decided the proposed legis-lation wasn’t comprehensive enough, created duplication among agencies, and didn’t eliminate “the menace of cor-ruption.” ——Siddharth Philip

The bottom line Road safety in India increasingly is an issue as Indians grow more affluent and buy more cars. Fatalities exceed anything in China or the U.S.

Industrial Policy

Don’t Go to Rio For a Deal on an iPad

Stiff taxes on imports protect local ▶manufacturers at a cost

“Brazilians sometimes pay luxury- ▶good prices for second-rate items”

After work, Brazilians generally hit the bars to have a few beers and caipirin-has. On the night of Dec. 2, though, almost 500 gadget-crazy Brazilians in São Paulo opted to line up outside electronics retailer FNAC’s big store in Morumbi Shopping complex south of the city. They waited until midnight to buy the Apple iPad, which final-ly went on sale in Brazil months

out a license, so there is big demand for men like Rafiq who can help new driv-ers get behind the wheel without taking exams or filling out paperwork. Some agents have as many as 30 employees on a monthly payroll, says Rafiq, who nets between 500 and 1,000 rupees a day. “There is a lot of competition here,” he says. “In India, you can get a driver’s license as easily as a chai,” says Delphine Muhlbacher, president of the Headlight India safety advocacy group, referring to a local tea drink. “In this context, driving licenses can sometimes turn into licenses to kill.”

Having unlawfully obtained their li-censes, drivers often pay little attention to traffic laws. “There is absolute law-lessness on the streets,” says Satyendra Garg, New Delhi’s joint police commis-sioner for traffic. “Unless there is a po-liceman at every intersection, people don’t obey any traffic rules.” That helps make India’s congested roads the dead-liest in the world. Crashes in India killed 119,860 people in 2008 (an average of 327 a day), compared with 37,261 fatali-ties in the U.S. Traffic accidents cost the nation about 3 percent of its gross do-mestic product every year, according to Indian government data.

The problem is likely to get worse. Auto sales in India are on pace for a record-setting year: Sales of passen-ger vehicles in October rose 38 per-

cent from 12 months earlier, prompting automakers to say they may exceed a sales forecast of 2.4 million autos in the fiscal year ending Mar. 31. In fiscal 2001 just 615,000 cars were sold. Carmakers in India are benefiting from a $1.3 tril-lion economy that expanded 8.9 per-cent in the three months through Sep-tember from a year earlier. Salaries may grow an average of 11 percent this year, the fastest rate in the Asia-Pacific region, according to human resources adviser Aon Hewitt.

To capitalize on the growing market, a race is on to introduce low-cost cars to India. The latest is the Etios. Priced at 496,000 rupees ($10,900), it is the Japanese automaker’s cheapest offering in India and will compete with low-cost small cars from Honda Motor, Ford Motor, and Suzuki. “We are aiming for a full-scale presence in India,” Toyota President Akio Toyoda said at the launch of the Etios in Bangalore.

Since the Indian consumer is so price-sensitive, though, many made-in-India cars don’t have safety features common to other markets, accord-ing to a recent government report on highway safety. Seat belts are the only safety feature that automakers must provide—even Tata Motors’ ultrache-ap Nano car has them—yet the increase in car buying hasn’t boosted demand for air bags or antilock brakes. “It will

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Global Economics

after its international launch. First in line was Joao Teofilo Ribeiro, who was so excited he brought his entire family to wait with him.

They weren’t waiting for a bargain. The iPad lists at FNAC and other Bra-zilian stores for $985, almost twice as much as in the U.S. and one of the high-est official prices for an iPad anywhere, according to Macworld Brazil, a Brazil-ian newsletter run by U.S.-based Inter-national Data Group.

The iPad is one example of the many price distortions caused by Bra-zil’s elaborate industrial policy. Com-panies that don’t manufacture goods in Brazil have to pay stiff tariffs if they want to sell to the nation’s consum-ers. Brazil levies a 60 percent tax on the iPad and as much as 90 percent on imported cars. A blouse that retails for $49.50 at The Gap in the U.S. goes for $82 in Brazil. “Brazilians sometimes pay luxury-good prices for second-rate items,” says tax specialist André Mendes Moreira, who writes a widely read financial column and tracks the impact of import taxes on everything from cars to champagne. “The consum-er is at a clear disadvantage.”

Brazil imposes these stiff taxes on im-ports to promote local industry and en-courage foreign manufacturers to set up factories inside the country. Samsung Electronics, for example, has been manufacturing locally since 1986. It now

makes the Galaxy Tab, its answer to the iPad, at one of its Brazilian plants. In contrast to Samsung, Apple is a holdout. Chief Executive Officer Steve Jobs told a Rio de Janeiro official in March that he refused even to set up an Apple Store in Brazil, citing “super-high taxation.”

Protectionism shows no sign of easing under newly elected President Dilma Rousseff, says André Sacconato, an economist with one of Brazil’s big-gest consultants, Tendências Consul-toria Integrada in São Paulo. Rousseff, a key minister under outgoing Presi-dent President Luiz Inácio Lula da Silva, backs an aggressive industrial policy. “She supports Lula’s ‘buy Brazil’ ap-proach,” says Sacconato.

Today, in part because of protection-ist policies, Brazil produces complex manufactured goods such as jets and oil platforms. Yet Sacconato says the econ-omy would fare better if, instead of fenc-ing out rivals, the government provided decent infrastructure and levied lower and fewer taxes. State-controlled com-panies support the buy Brazil policy. Petroleo Brasileiro, or Petrobras, buys about 70 percent of its oil production equipment locally, a practice often cited approvingly by outgoing President Lula. Petrobras Chief Executive Officer Jose Sergio Gabrielli says he supports the program, since it will provide jobs to Brazilians as Petrobas commercializes its latest oil discoveries.

Protectionism is not the whole story behind the $985 iPad. Most importers also charge a premium to cover the risk of fluctuations in the exchange rate and tax costs, according to Moreira. He says the importer premium adds to the cost of the Smart minicar. Made in Europe by Daimler’s Mercedez-Benz, it sells in Brazil for $38,500, more than three times the U.S. price.

The pain would be even deeper if it were not for the Brazilian real’s 39 percent gain against the green-back since 2009, which cheapens

the cost of imports. The devaluation of the dollar has encouraged “mules”

to fly to Miami and New York to buy goods, then resell them in Brazil. That’s the other way Brazilians can get

an iPad. ——Lucia Kassai and Cecilia Tornaghi

The bottom line The $985 cost of an iPad in Brazil provides a vivid example of how the country’s protectionist policies hurt Brazilian consumers.

Número um!

Policy

Setting the Direction for China’s Economy

The Central Economic Work ▶Conference tackles inflation

“If anyone is printing money, ▶it is China’s central bank”

Every year, China’s Prime Minister con-venes the Central Economic Work Con-ference, a three-day enclave in Beijing where top policymakers, including the heads of the major ministries and Chi-na’s largest state enterprises, set strat-egy and goals for the next 12 months. Decisions reached at the conference can affect trade and the health of the global economy. This year’s conference, ex-pected to open Dec. 10, will focus on how quickly the Chinese economy can grow without overheating, according to Janet Zhang, a macro economist at Drag-onomics Research & Advisory in Beijing.

Zhang and UBS analyst Tao Wang say Premier Wen Jiabao and his advisers will probably target 8 percent growth for

Tipping Points

Seeking the Number That Explains It AllAre we poised for robust growth? Or are we still in an anemic expansion? If you go by payrolls, the economy remains in a rough patch. Other data give hope. Tax receipts are rising—showing that Americans have more income. Jan Hatzius, an economist at Goldman Sachs, looks at how fast households are paying down their debt. The paydown rate has slowed, he says, a sign consumers are more confident about the future. Here, other economists pick a statistic that to them explains what’s going on. ——Courtney Schlisserman

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Dean Maki Chief U.S. economist,

Barclays Capital

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December 13 — December 19, 2010Bloomberg Businessweek