With just a fortnight to go for his retirement on December 28, Ratan Tata is getting ready for a new life. His multi-storey, sea-facing house opposite Mumbai’s Colaba Post Office is being reconstructed even as Mukesh Ambani has vacated the neighbourhood recently for a gleaming residential skyscraper. Tata, who plans to continue flying and return to formally learning music, will be surrounded by many objects of the 144-year-old, $100-billion Tata Group he’s led for the past 21 years. He can, of course, anytime walk down to the two Taj Hotels. But he’s unlikely to pop in at the New Persian Restaurant on Wodehouse Road where M.F. Husain had his morning cup of Tata Tetley.
A short drive away in his Jaguar—and past thousands of Tata Indica taxis on the road—he’ll reach the outlet of the latest group venture, Tata Starbucks, near the Bombay Stock Exchange (where four Tata companies figure on the Sensex). Within walking distance is one of Tatas’ Westside retail stores, among the 10-odd new businesses the group got into under his stewardship. He could also stroll into his office in Bombay House. But Tata’s been insisting that, apart from his role as chairman of the all-powerful trusts that run the group, he is keen to move on. Like it happened with him two decades ago with uncle JRD, the burden of expectations will now have to rest on successor Cyrus Mistry.
Not surprisingly—given the reverence accorded to the Tata brand—the 54-year-old Ratan Tata faced similar questions back then. It has been a remarkable transformation for a man who was pilloried for his initial directorship with radio and TV manufacturer Nelco in the 1980s. It’s to his credit that a sprawling, stodgy, loose confederation of companies run by individual chieftains went on to occupy a global stage (today, 56 per cent of revenues come from abroad). Along the way, he has courted controversies galore—including the publication of his conversations with his former lobbyist Niira Radia—that came to dull the saintly glimmer associated with the group (which did not speak to Outlook for this story).
It doesn’t help matters that this change of guard comes at a time when the Tata empire is creaking on many fronts. As per estimates, while the group as a whole has seen only about 10 per cent return on capital, a majority of its units have failed to achieve even that. The group depends heavily on two cash cows: TCS, the number one software company in India, and among the top globally; and Tata Motors, which, after its acquisition of Jaguar Land Rover (JLR), is showing good numbers. The group’s telecom venture has been losing money regularly, and others like Tata Steel are experiencing difficult times.
Tough times are what Ratan Tata faced too when he assumed reins in 1991, having to tackle JRD’s chieftains. The most prominent of these—enjoying unbridled freedom and enormous powers—were Russi Modi in Tisco (now Tata Steel), Ajit Kerkar in Indian Hotels and Darbari Seth in Tata Chemicals. Many of these companies were earning poorly. There was also little expansion in the group’s activities beyond existing businesses at a time when a liberalising India was opening up its doors. Says economist and Corporate and Economic Research Group chairperson Omkar Goswami, who has interacted with Tata for three decades, “At a time when Dhirubhai Ambani was moving with breathtaking speed and setting up new units, the Tata group was, by and large, staying where it was.”
Tata earned his spurs by dismantling these power centres. He also worked to increase the control of holding company Tata Sons to establish a central leadership and thinking. This was done using the cash generated by the group’s most successful company, TCS. That strategy paid off initially as the group got into a trajectory of high growth and diversified into areas like telecom and retail. “It’s a story of great consolidation where he got rid of business he didn’t want to be in, got rid of the satraps and got into a situation where execution became important and where he could leverage the Tata name,” says Goswami.
So as the Indian economy opened up and started growing, it was Ratan Tata’s dynamism that made all the difference to the group. Says Tarun Khanna, Jorge Paulo Lemann Professor at the Harvard Business School, “I’d attribute the group’s success to more than just the ambient economic growth of India, to a degree of entrepreneurial boldness (relatively scarcer in earlier years) and good management and stewardship.” Not everyone agrees, though, declaring that the group expanded without much synergy among group companies. Even now, says former telecom entrepreneur and Rajya Sabha MP Rajeev Chandrasekhar (who had a high-profile spat with Tata a couple of years ago), “The Tata group is currently at an inflection point because the days of large conglomerates are over.”
It’s ironical that with capital coming increasingly from overseas and non-Tata sources that group companies are facing questions regarding profitability. But that’s also because Tata took a conscious decision to go global with a vengeance in the late ’90s. In a paper, former OECD economist Andrea Goldstein has said that while the Tatas were always global—they had a London office in 1907 and Tata Steel made a light-armoured vehicle, called the Tatanagar because the steel came from there, during World War II—their international reach at the time was much smaller than that of other big Indian conglomerates like the Birlas, Thapars, Kirloskars, or the Oberoi hotel chain.
That changed dramatically when the group acquired Anglo-Dutch steelmaker Corus in 2007 for $12 billion. Within a year, ailing British carmaker Jaguar Land Rover was added to the kitty at a cost of $2.3 billion, a deal everyone thought was a mistake. Five years later, while the steel acquisition has hit new lows thanks to a dip in the sector, the car gamble has paid off, with JLR recording a 27 per cent jump in sales in the last fiscal. Have these acquisitions delivered shareholder value? Says Enam Securities co-founder and chairman Vallabh Bhansali, “Perhaps in the process of globalisation, shareholder value has not got the imperative. Over the last few years, in terms of delivering shareholder value, Tata Steel/Corus has dragged numbers down.”
But you can’t fault Tata for dreaming big, even if the thought came riding a small car. After having practically started the ‘Indian’ passenger car segment with Indica, he came up with the idea of a Rs 1 lakh car, the Nano, a promise he delivered on, amidst worldwide sensation, in 2009. The product was an instant global hit, catapulting Tata to the league of people like Henry Ford. It’s a different thing that, three years down the line, the small wonder is struggling to survive against price increases and competition from global giants. In a recent interview on the Tata website (see below), Tata has said he’d love to have a chance to implement a new marketing plan for the car.
Another legacy Tata always sought to espouse was of his group’s distinctive corporate culture of honesty and integrity, which had to cope with the immense pressure of doing business in a fast-growing India. Says Anirudha Dutta of CLSA, “He achieved all this in an environment where political management, which the Tatas had always stayed away from, was becoming important and as a result Tatas were seen to be missing out on opportunities.” A case in point was Tata’s debacle in the aviation sector where rivals and politicians ensured his venture with Singapore Airlines never took off.
“I Have Always Tried To Do The Right Thing’’
In an interview posted briefly on the Tata website in December 2012, Ratan Tata was unusually candid. Excerpts:
On communication: “I have changed. I have realised you cannot carry people with you through public proclamations of what you want to do; there is a lot of behind-the-scenes convincing and cajoling that's needed.”
On India Inc: “In my interactions with business leaders in India, as against elsewhere, there is this feeling that they are looking for cracks in your armour in order to pull you down; this happens not just to me but to everybody. There is a tendency to look at the dark side of everybody and everything, every situation and every government move.”
On Nano: “Unfortunately, it has come to be perceived as a low-priced car and various stigmas have been attached to it. It has been marketed like other cars, but as a minimal automobile at a low price. I think that is the wrong way to go and I would love to have a chance to implement a new marketing plan for the product, if that were possible.”
On failure: “In India, regrettably, hierarchy and designations are more important to people than job content or even pay packets…to that extent, I think we have failed—I have failed—in creating a flat organisation.”
On Cyrus Mistry: “I have watched him at close quarters, he possesses the ability to analyse businesses. I consider myself to be more of a numbers person than JRD was. I believe Cyrus is more of a numbers man than I am.”
On his future: “I would like to make a clean break.”
On his legacy: “I have always tried to do the right thing.”
On his legacy: “I have always tried to do the right thing.”
Most prominently, during the days of the war between the GSM and CDMA lobbies in telecom, Tata took on the undisputed leader in Indian telecom, Sunil Mittal. He also had problems with ex-telecom minister Dayanidhi Maran with whom he clashed not just in the sector but also because the latter’s home company, Sun Direct, was a competitor to Tata’s DTH entity, Tata Sky. By 2008, the group found itself in the middle of the 2G scam, a charge it denied. More recently, the government initiated a probe into the VSNL disinvestment to Tatas in 2002.
Of resurgence Tata with Taj Mahal Hotel’s staff at its reopening. (Photograph by Apoorva Salkade)
Many will say Tata needed to hire a lobbyist like Niira Radia in order to do business in India. Perhaps. But there’s no denying its fallout has dented the group’s clean image. “By and large, the Tata group has a clean image,” says senior business journalist and commentator Paranjoy Guha Thakurta, “but there are instances where the facade has worn thin. They are in business and clearly wooing politicians and while they are subtle and not doing it as brazenly as others, the fact is that there are grey areas here.” Many feel this could be because of India’s corrupt business environment. Says economist and former FICCI secretary general Rajiv Kumar, “There could be situations that are unavoidable. The operating environment may have necessitated even a company like the Tatas to behave in a certain way.” A view that prevails even outside business. Adds Santosh Desai, CEO, Futurebrands, “Over a period of time, he has absorbed political changes and some environmental compulsions may have rubbed off. It still is the most ethical group; it’s only in nuances that it may have gathered some taint in a few controversies.”
Whenever asked about his legacy, Tata has always maintained it is for others to judge. He has definitely taken the group forward and earned respect on the global stage. It’s unfair to judge him solely on the Corus acquisition and the high debt the group has collected. “Global competition from above and below is fiercer.... Mr Mistry’s central challenge: Find new growth norms in a slow growth world,” says management guru Vijay Govindarajan of the Tuck School of Business at Dartmouth, US.
As for the image of the House of Tatas, Tata may have learnt how to navigate emerging India in a savvy manner, but the group’s reputation is still better than many of its peers. Having ably helmed the group for two decades, he is all set now to “be a grey eminence in the group and its affairs”, according to Goswami. Given that Mistry will need, at least initially, a helping hand in negotiating these troubled times, perhaps that walk down to RTI in Colaba for a pastry will have to wait for a bit.
On paper RNT’s letter to the DMK patriarch
Telecom: Tata Telecom was accused of being a beneficiary of the controversial dual-licence policy introduced by then telecom minister A. Raja in October 2007. Tata's reputation took a beating when he wrote a letter to DMK supremo Karunanidhi in December 2007 praising Raja's “rational, fair and action-oriented” leadership. Tata, however, was not named in the CBI chargesheet on the 2G scam—it was also discharged by the CAG.
Niira Radia tapes: When Niira Radia's phone conversations were made public by the media—including Outlook—they gave the impression of Tata trying to influence the appointment of A. Raja as telecom minister instead of Dayanidhi Maran in 2009. Tata moved the Supreme Court on grounds of privacy invasion. There was also considerable noise regarding the Tata group donating Rs 20 crore to a hospital in A. Raja's constituency Perambalur and real estate transactions in Chennai. The Tata group denied the charges.
Bribery row: A couple of years ago, Ratan Tata said the group's three attempts to launch an airline with Singapore Airlines failed because he was uncomfortable with the idea of paying a Rs 15 cr bribe to a minister, as an industrialist had suggested. Tata went on to state that “an individual thwarted our efforts to form the airlines”. The person being referred to is Naresh Goyal of Jet Airways.
Olive Ridley turtles: Dhamra Port Company Ltd (DPCL), comprising of Tata and Larsen & Toubro, was awarded a contract by the Orissa government to build and operate a port in Bhadrak district. But the project, which became operational in 2011, ran into troubled waters as it emerged that it posed a threat to Olive ridley turtles. Greenpeace issued ads against Tata in British papers, and its activists, dressed as turtles, even chained themselves to the firm's Mumbai headquarters. Though operational, L&T is reportedly looking to find a buyer for its 50 per cent stake in DPCL. Tata has denied it has any similar plans.
ULFA Connection: Assam Police arrested several executives of Tata Tea in 1997, accusing them of aiding and abetting the banned insurgent group United Liberation Front of Asom or ULFA. This followed the arrest of the wife of an underground ULFA leader at Santa Cruz airport in Mumbai, whose treatment Tata Tea was paying for. The Tatas denied the charge and claimed it was part of their health scheme for people in Assam. Ratan Tata had met Assam chief minister Prafulla Mahanta to dispel misgivings. However, taped conversations of Nusli Wadia asking the central government to intervene mysteriously found their way to the public domain. Neither the PM at the time, I.K. Gujral, nor Mahanta, lasted long in office.
By Arindam Mukherjee and Arti Sharma with Prachi Pinglay-Plumber
Let us accept that doing business in any country, and particularly in India (with its many states and their many parties in power), is a tough proposition. In this scenario, Ratan Tata has done a commendable job (Exit Stage Right, Dec 17). Indian cars like the Tata Indica or Nano should be considered a national pride, even if they are far from perfect. Remember Ralph Nader’s immortal comment—“unsafe at any price”—about American cars. Hopefully, RNT successor Cyrus Mistry will take to new heights the business conglomerate which does business in a far better way than the others who made it big under the licence raj.
Narendra M. Apte, Pune
Tata Sons, the holding company, does not have more than a 10 per cent share in the group, except perhaps in Telco, where it might be 16 per cent. This is no exception, but almost a rule in the corporate world, that ‘owners’ have only a 2-5 per cent stake but wield all the power in the company. That said, Tata companies are dependable. You can invest in low cycles of stockmarket, and then forget about them. The bonus and dividends over the years, or even in 10 years, can help you recover your investment.
B.V.G. Rao, Hyderabad
None of the Tata Group companies is a symbol of excellence. Instead, they’re like government-run companies where the decision-making is slow and the work ethic pathetic. Mistry was one of the members on the committee to select a successor for Ratan Tata, and ended up becoming the successor himself. All in the family, ultimately. What a sham!
Kiran Voleti, Chennai
RNT is retiring at a time when the conglomerate has started to stumble thanks to the group’s telecom fiascos. Mistry will have to squeeze out all his business acumen to steady the ship.
K.C. Kumar, Bangalore
Do the Tatas use the complexity of our regulatory environment as a strategic strength?
Ashok Lal, Mumbai
Unreservedly proud of Ratan Tata and the group and their success in showing the world what Indians can do.
Atul Chandra, Mumbai
RNT is more of an industry leader than a businessman. His frugal lifestyle, personal humility and dedication to the group put him in a league of his own.
Rishi Vyas, Kangra
Heartening to hear that RNT, post his retirement, plans to set up a veterinary hospital of international standards in Mumbai. An ardent dog-lover, he can at last devote time to his ‘pet’ project.
Beena Mathur, Pune
As per reports, Tata Motors rejected Pakistan’s request for 380 Tata Sumo Grandes for their police, because of its involvement in 26/11. The group could have made more profit, but for them the country came first. I wish our government could also emulate them.
Mahesh Kapasi, New Delhi
It was on these pages that Outlook carried a rant by Arundhati Roy against the Tatas, painting them as blood-sucking evil capitalists. Now it has a whole cover story singing paeans to the man. Is this Outlook’s idea of ‘balanced reporting’?
Ramesh Raghuvanshi, Pune
How the Nano deal is structured
The soft loan of Rs 9,570 crore that the Gujarat government has offered to Tatas will have to be repaid by them in 20 years but the repayment schedule will be linked to the VAT outgo on production capacity of 2.5 lakh cars in first phase.
For first four years, Tatas will have to repay the state government at 200% of the gross VAT payments per month. Estimates are that Tatas will have to pay an annual VAT of Rs 375 crore to the government based on its declared phase one annual capacity of 2.5 lakh cars. This means, the company will have to pay three times this amount or Rs 1,125 crore to the government as its loan repayment for the first four years.
Thereafter, repayments will reduce to 150% of its VAT payment till the state government recovers 150% of the proposed Rs 2,900-crore investment that Tatas will put up in phase one. This repayment will further come down to 100% of the VAT payment over the following years.
Various infrastructure facilities to be provided by the state government to Tatas include construction of a two or four-lane road connecting the project site, construction of a natural gas pipeline to the site, a 200-kva power supply, a 14,000-cubic metre per day water at the project site as well as facilities for waste disposal.
The state government has also promised to provide facilities for development of a ‘Tansportnagar’ on a publicprivate partnership for loading/unloading, lodging and boarding and other facilities in addition to providing 100 acres of land near Ahmedabad for a township at a later stage.
The leak of details of the sops being offered to Tatas, which has been a closely guarded secret, is understood to have set off a scramble within the CMO to find out how the document got leaked. The note was prepared by state industries department on the basis of the MoU with Tatas to get it approved by the Cabinet.
Info on Nano project denied under RTI
Note that the land is fertile land, belonging to the Anand Agricultural UNIVERSITY, is TOTALLY FREE OF COST.
Deal is out: Win-win for Tata, Gujarat
TIMES NEWS NETWORK November11, 2008
Gandhinagar/ Ahmedabad: If this is the deal, it is a win-win situation for both Tatas and Gujarat. A loan of Rs 9,570 crore and that too at an amazingly soft 0.1% simple rate of interest. That’s the big sweetener along with other carrots that the Gujarat government is understood to have doled out to draw Tata’s Nano project to Gujarat.
This, as per a document circulating in Sachivalay on Monday which the Modi administration refused to either confirm or deny was authentic. The government has denied the information sought under the Right to Information Act to the media.
If the document is official, it is a deviation from Chief Minister Narendra Modi’s hard stance on sops. But then look at it another way. Tatas need only Rs 2,900 crore for setting up the Nano plant, including the relocation cost of Rs 700 crores. The remaining Rs 6,670 crore will be spent on infrastructure development, including roads and rail, gas pipelines, effluent treatment plant, electricity, water and all that goes in the name of providing infrastructure to the Nano plant.
This infrastructure will be of use not only to Nano but to fuel the CM’s vision of turning Gujarat into a global auto hub, as more players follow the Nano trail from Singur to Sanand. It is just that Modi is picking up the bill first and Ratan Tata is paying back in easy instalments spread over 20 years. The document is believed to have been put before the Cabinet for approval. Just to give an idea about the size of the loan, it would be a quarter of Gujarat government’s annual budget of Rs 40,000 crore. Tatas have got their share too. They get a 100% exemption on electricity duty in addition to a concessional power tariff. The 1,100 acre land comes highly subsidised without any stamp duty, registration and transfer charges. The payment for land would be made in eight equal annual instalments at a compound interest of 8% per annum.
Tata wants only Rs 2,900 cr for Nano plant
Infrastructure cost of Rs 6,670 cr also billed to Tatas
Repayment of Rs 9,570 cr loan @ 0.1% over 20 years
100% exemption on electricity duty
Concessional power tariff
1,100 acre land comes cheap
No stamp duty, registration and transfer charges
Payment for land in 8 equal annual instalments
Ratan Tata is more of an industry leader than a businessman. His frugal life style, his personal humility and above all, his selfless dedication to Tata Group takes him to a league of his own. Tata gropu minus Ratan Tata will be just another blooming congolmerate.
Reg your point of AGMs of publicly listed companies, one more fact is that most of these big business group, have public institutions such as the LIC, GIC, etc as big shareholders. And that helps both ways. Needless to say government run public institution's representatives do not work for their real stakeholder well being (say policy holders in case of LIC) but for the interest of the employer (the ruling government and party) and in return they blindly favour the promoters.
Not accusing Tatas or Birlash here, I would still say they are infinitely better and more ethical in most business practises than many other business groups, but the point is there is so much of underhand dealing that gets done everywhere and in every possible way. The ruling party (at Delhi) always gets a big benefit in the end. And we aam admi keep eating the crumbs and praise the rulers for being so gracious and good minded to give us some free popcorn !!
Male Unblocked >> The holding pattern of Tatasons is very mysterious, and will not be divulged to us, certainly not by the Indian media.
You are right, but Tatas are not the only one in list.
What about Jet Airways - There are clear rules and laws limiting foreign ownership shareholding (as a percentage of total equity) in aviation sector but there is absolutely no clarity of whether Jet Airways complies with it..
Will OUTLOOK's BUSINESS MAGAZINE DARE TO MAKE A BIG ARTICLE ON MR NARESH GOYAL's RISE, the way they had an entire edition on Jagan Mohan Reddy's crony capitalism?
Please note, I have nothing against Jet Airways, or Goyal,it is just about the basic laws of land are complied with.
I can give more and more examples - like there is one law which says listed companies should have public shareholding of minimum 10%.. But many PSU companies dont follow this rule. Government is the biggest rule breaker , so why do we cry when people break the law?
But But then, we will never know more on this. Indian Media is FULLY owned by crooks who will make big issues of non issues (such as imposition of dress code in some private education institution) etc but we will not hear any investigation on all these.
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