India, the Tatas, and Ratan

India, the Tatas, and Ratan
Arun Maira
(Published by The Hindu in Ratan Tata: A Life in Innovation and Enterprise, November 2024)

Ratan Tata’s legacy is woven into the unfolding histories of India and the Tatas. With Ratan’s passing, the Tatas and India have lost a role model leader. He led with human values through difficult times, when the pursuit of financial valuations was demanded of business leaders, and the accumulation of financial wealth became the measure of their personal success.

Ratan Tata, me, and my wife Shama became friends soon after he and I joined the Tatas, and before we became bosses of companies in the Tata group. Ratan had joined as an architect in the Jamshedpur town planning department in 1962 after studying architecture at Cornell University in the United States, following a brief stint at an architecture firm in Los Angeles. I had been selected to be part of the elite Tata Administrative Service after my master's degree in physics from St. Stephen’s College, Delhi. Neither of us had studied business management. We were expected to learn on the job, tutored by Tatas’ leaders. I was posted at the Tata Steel headquarters in 1965, seated in an open office in Bombay House, a few feet from the office of the Group Chairman, Jehangir Ratanji Dadabhoy Tata, or J.R.D. Tata, as he had come to be known. I was 23, and Ratan was five years older.

Ratan was transferred to the Tata Steel headquarters in Bombay House in 1967 and brought closer to the Group Chairman. He and I had the same rank and salary. There was some consternation in the office to seat a Tata, a potential successor to the Chairman, in an open office with clerks seated around, as I was. Ratan insisted he would not be treated differently by me or by D.R. Gadgil, another officer older than us, who had the same rank. So, three closed cabins were planned to be squeezed into the crowded office. The worst of the three was the middle one. As the junior-most, I should have been in the middle. Ratan did not accept this basis for allocation. He insisted a lot be drawn, and he was allotted the middle one!

We did not get to spend much time in our cabins, however. Ratan and I travelled together to explore new opportunities for the Tatas.

Tata Steel had become vulnerable with the implementation of the ‘mixed economy’ strategy for India’s economic development—a strategy supported by the private sector—and the consequential nationalisation of the steel industry. The private sector would not have been able to raise the huge amounts of capital required to build large steel plants. Therefore, the ‘commanding heights’ of industry were reserved for the public sector—industries to produce the basic inputs for manufacturing, construction, and agriculture, such as steel and fertilizers, and the creation of world-class engineering schools—like the Indian Institutes of Technology.

Tata Steel’s old steel plant in Jamshedpur was small by modern industry standards—only one million tons in capacity. The new public-sector plants were much larger. They also had the latest technology—from the British (in Durgapur), Germans (in Rourkela), and Russians (in Bhilai). Their equipment was newer, and their cost of production was lower. They attracted graduates from India’s best engineering schools. Ratan and I travelled “to the real places, to witness real things, and talk to real people,” which is a better way to understand business challenges and find new opportunities than poring over spreadsheets of numbers.

We travelled between the steel plants overnight, sleeping in trains without bedding, and stayed in government guest houses during our visits. We toured the impressive new public-sector factories, and we met their officers, some of whom had left Tata Steel for better prospects in the public sector. Ratan and I also travelled by car to villages in Punjab to understand how the Green Revolution was changing the State’s economy and the lives of its people. We sat on stringed cots in the open and drank sugarcane juice with the farmers. We listened to their suggestions for new products and services the Tatas could provide them.

Shama and I went on ‘double dates’ together with Ratan and a girlfriend, in his open American convertible, enjoying the breeze on Marine Drive and dinner with music at “Jazz by the Bay.” When Shama was expecting our first child, she came with Ratan and me on a business trip to Jamshedpur. Ratan and I were flying to the Joda and Noamundi iron mines in a small, two-passenger Tata plane. Ratan was in the pilot’s seat that day to add to the hours he needed to qualify for his pilot’s license. He insisted Shama come with us and assured her that her baby would be in safe hands with him flying the plane. She kept her heart in her mouth when Ratan circled over the landing strip in Joda, so the cows grazing on it could be shooed away for Ratan to land safely!

Ratan and I vacated our cabins in Bombay House within a couple of years, both to explore the wider world for the Tatas. Ratan moved to Sydney to set up a joint venture with Dalgety’s, an Australian trading company, to explore business opportunities for the Tatas in Australia.

I include my personal story only to explain how I came to know Ratan Tata, the human being behind the title of chairman of one of India’s most respected business groups, which he later became. Also, to explain how I learned Tata values and the Tata way of building industry.

I moved to the office of Sumant Moolgaokar, Chairman of TELCO (Tata Motors) and Executive Vice Chairman of Tata Steel, who was building new technological capabilities for both TELCO and Tata Steel. He steered the creation of joint ventures with the government of Singapore to set up a training school for skilled craftsmen and a precision tool room in Singapore, to enable the development of high value-adding engineering industries in the country. Moolgaokar gave me many challenging opportunities at a young age. I travelled to Singapore for meetings with local financiers and the government there and presented plans for new ventures. 

Moolgaokar shot me off to Malaysia at short notice in 1977 to take over as the Chief Executive Officer (CEO) of Tatab Industries, the Tata joint venture in that country—the Tatas' first manufacturing venture abroad—which had run into financial difficulties. The name Tatab was a portmanteau term—a combination of Tata and TAB (Tengku Arif Bendahara), the initials of the Malaysian partner, who was also a powerful local prince and promoter of industries.

Under Moolgaokar’s tutelage, I learned the art of building a company from Sumant Moolgaokar. He set out to build India’s, and the developing world’s, first integrated engineering enterprise on the outskirts of Pune, capable of designing and producing trucks and buses and the precision machines and tools needed to make them. No European or U.S. automobile company needed to build such sophisticated engineering facilities for themselves. They could buy the precision equipment they needed from specialist machine-tool makers. In fact, TELCO had imported equipment from such companies to set up its first integrated truck and bus plant in Jamshedpur in the 1950s with Daimler Benz’s guidance.

By the 1960s, when Moolgaokar was planning the Pune factories, India had run short of foreign currency to import such equipment. The government was prepared to allow the import of technology only for a limited period to enable Tata engineers and workmen to learn to make these sophisticated machines and tools in India. Moolgaokar charged me with creating innovative ways to develop the human capabilities needed for India to catch up with the world. He created a “learning factory” in Pune, where young Indian engineering graduates fresh out of IITs and trainees from ITIs, none of whom had designed or manufactured such equipment, learned rapidly by getting their hands dirty. They failed at times but succeeded as well.

A truck is made up of a thousand parts—electrical, mechanical, hydraulics, steel, rubber, plastic, and glass—manufactured by specialists in different disciplines. TELCO had to nurture an entire sector of manufacturing industries to meet the deadline set by the government, to produce trucks and buses with 90% domestic components in ten years. Moolgaokar would constantly remind us: “Gentlemen, you are not building trucks and buses: you are building India’s industry.”

The Prime Minister, Mr. I.K. Gujral, with the winners of the Prime Minister's Trophy for the Best Performing Integrated Steel Plants: (r to l) Mr. Ratan Tata, Chairman, Tisco, Dr. J.J. Irani, Managing Director, Mr. Arvind Pande, Chairman, SAIL, and Mr. V. Gujral, Managing Director, Bhilai Steel Plant, in New Delhi on September 16, 1997. (Published in Business Line on September 17, 1997). The Hindu Archives.

We did it. By the end of the 1970s, entirely India-made trucks and buses with the Tata badge in front were selling in 50 countries around the world. In Malaysia, where I was deputed as CEO of Tatab Industries, Tata trucks and buses became the highest-selling brand, outselling European and Japanese companies, and at prices higher than the Japanese.

When the government of India allowed Japanese companies to import their semi-assembled light commercial vehicles to India in the 1980s, licensing restrictions on TELCO were belatedly lifted, and TELCO was allowed to produce a lighter vehicle outside its licensed range to compete with the Japanese. With the proviso that TELCO would not import any parts and technology because the limited foreign exchange had been allocated to the Japanese already to import their vehicles to satisfy the rising demand for light vehicles in the country, TELCO’s engineers and workmen took up the challenge. They set a world record in product development. They produced the 407 LCV, with an entirely new engine, transmission, chassis, and cabin, within 18 months and overtook the Japanese. 

The 407 dominated the Indian market and was exported as well. The Japanese truck makers retreated from India.

Ratan was a shy man, who didn’t like the spotlight on himself. He and I did not meet often after we left Tata Steel—he for Australia and me onto other paths within the Tata Group. Our paths crossed again when Ratan was appointed Vice Chairman of TELCO in 1988 to understudy Sumant Moolgaokar, who was preparing to step aside as Chairman. J.R.D. Tata, Chairman of the Tata Group, was 84, as was Moolgaokar. Russi Mody, Chairman of Tata Steel, was expected to take over as Chairman of TELCO from Moolgaokar, in preparation to take over as Chairman of the Tata Group from J.R.D. Tata.

Russi liked to be the centre of attraction. He spoke too soon to the press about impending changes within the Group and his plans when he took over. He did not talk respectfully about the ageing Sumant Moolgaokar. J.R.D. Tata and Moolgaokar were offended. Plans were changed. Ratan was swiftly elevated as Chair of TELCO, which had become a larger company than Tata Steel, to prepare him to overtake Russi as Group Chairman. Ratan’s coming to TELCO brought him and me together again briefly before I left on a sabbatical to the U.S.

A large reception was given in the Taj Mahal Hotel to announce Sumant Moolgaokar’s retirement and Ratan’s elevation. Shama and I went up to Ratan to congratulate him as other guests and reporters were approaching him. Shama shook his hand. As others neared, Ratan held on to her and said, “Don’t go. I am lost here.”

J.R.D. Tata, Russi Mody, and Ratan Tata were great leaders who could ‘walk with Kings and yet not lose the common touch’, as Rudyard Kipling says in his tribute to great men in the poem If. J.R.D. was always self-assured, with a twinkle in his eyes, amongst presidents and prime ministers and factory workers. Russi was gregarious and would comfortably put his hands on the shoulders of anyone—prince or worker. Ratan was shy and quiet, and listened equally to all.

I left with my family for a sabbatical in the U.S. soon after Ratan moved to TELCO. J.R.D. Tata suggested I take the sabbatical to attend to some family health matters. Tatas were restricted by regulations to give me any money in the U.S. J.R.D. recommended I join a consulting firm in the U.S., which I did, to liaise with U.S. and European companies and to understand how international business worked. The experience would be very useful for the Tatas after my return, he suggested.

My sabbatical turned out to be longer than intended. I was away for ten, learning-full years. While I was away, J.R.D. retired, and Ratan took charge of the Tata Group and steered it admirably into the world when the Indian economy opened in 1991. Much has been already said and written about Ratan’s leadership as the helmsman of the group. Many who were much closer to Ratan during his years as chairman of Tata Sons have written about his undiminished humility and human decency even at the acme of his success.

I observed the changes in India and at the Tatas from further away and through a wider lens. From my distance from India, as well as my proximity to U.S. businesses, I saw changes in values and in methods of management to fit the demands of globalisation and the expectations of international investors. The Tatas had to respond to these requirements too.

The legacy that Ratan inherited was the Tata history of building a nation. From the 1990s, stock market valuations became the measure of entrepreneurship and corporate leadership. Other values, such as fairness in all relationships and caring for societal needs, began getting lip-service. They were pasted onto decorative values statements for marketing purposes.

When I was preparing to join the Indian Administrative Service (IAS) in 1964, in my mind to serve the nation, business enterprises were not as respected as they are today. None of the best in my university class wanted to join the private sector. Though work seemed easier in business organisations, and one could make more money too, they wanted to serve the country and vied to get into the IAS and Indian Foreign Service.

While I was preparing for my civil service examinations, I was persuaded by my college principal to interview for the Tata Administrative Service (TAS) before making up my mind about where to serve. The Tata directors explained the history of the Tatas to the candidates assembled for the TAS interviews. The directors told the candidates the tribute Mahatma Gandhi gave the Tatas. He said, while he was fighting for India’s political freedom, the Tatas were fighting for India’s industrial freedom. They told me I could serve the country just as well if I joined the TAS instead of the IAS. I was selected by the Tatas.

I learned business leadership first-hand from J.R.D. Tata and Sumant Moolgaokar, great leaders of India’s industrial history. J.R.D. Tata had said, whenever he had to make a difficult decision, he would ask himself first what would be good for India, and then what would be good for the Tatas. If ever in doubt, he would do what was good for India. It would turn out to be good for Tatas too in the long run, he said. In a tribute to Moolgaokar, J.R.D. Tata said, “Sumant Moolgaokar had a vision, a vision that enabled him to look beyond merely the construction of a factory. He realised that to build a new industry, you not only had to build the factory, but you also had to build the men, you had to build the technology.”

Have Tatas been able to live up to the values, which made them the most trusted enterprise in India after independence? What value has the group created for the common people of India? What are the lessons from the Tatas’ history for leaders of nation-building enterprises?

The stock market valuations of Tata companies went up during Ratan Tata’s tenure as chairman, from $5 billion in 1991 to $100 billion in 2021. Stock markets were rising globally in those giddy years of stock-market capitalism. The rising tide lifted many boats, but not equally. In the same period, the stock market value of the Reliance group of companies rose from $4 billion to $220 billion. Since then, fortunes have changed. As I write, Reliance is worth $277 billion approximately and the Tatas $400 billion.

An increase in a corporation’s stock-market valuation is a poor indicator of the quality of the enterprise and its sustainability, as many speculators learn to their peril. Just as the rise in a country’s Gross Domestic Product (GDP) cannot reveal the reality of the lives of its poorest citizens. Growth of GDP does not lift all boats equally. The wealth accumulated in stock markets has not trickled down enough in recent decades. Increasingly, it is reinvested in the stock markets, boosting the financial wealth of the richest people. A tiny portion of the financial wealth created in stock markets is being invested back into enterprises that create decent employment, to enable the nation’s workforce to earn more, save, and invest in their own futures.

What can India’s economic policymakers learn from the Tatas’ and Ratan’s legacies about how to change the shape of India’s GDP growth, and support more enterprises like the Tatas that skill more Indians and make more in India?

The Tata group was the largest and most diverse Indian conglomerate in J.R.D.’s time, as it is now. The Monopolies and Restrictive Trade Practices Commission’s assessment was that Indian conglomerates had concentrated too much power with their promoters. In 1969, the government broke up the managing agency system through which promoters of conglomerates controlled their companies.

The Commission had recognized that Tata values were different from the rest, but the law had to apply equally. J.R.D. had to stop the practice of CEOs of Tata companies meeting together every week with the Group Chairman to share best practices and information about the economy. Thus, the Tata flotilla drifted apart with independent leaders guiding their own companies. Ratan inherited this arrangement from J.R.D. in 1991.

Management theorists say conglomerates are too complex to manage. Stock markets see conglomerates as value destroyers. Investors have compelled their breakup to release financial value. Going against this global trend, Ratan devised an institutional architecture to bring the Tata flotilla together while maintaining the independence of all companies’ boards. He created new, lateral linking platforms below board levels, where executives could learn new ideas and best practices together about the management of quality, development of human resources, and stimulation of enterprise innovations, consistent with Tata values. The boards of companies signed agreements with Tata Sons to comply with Tata values for their right to use the Tata brand, which was a hallmark of trust in India, and valuable for hiring employees, acquiring customers, and raising finance.

J.R.D. Tata had led the group for fifty years. He had built the group, with leaders of diverse Tata companies, when the foundations of the country’s industry were being built after India’s independence. The British had earlier prevented such synergies. Ratan followed him and led the Tata group through a difficult transition after taking the baton from J.R.D. in 1991.

Tatas was the most trusted private business enterprise in the country in those early years. The national industrial policy, supported by the private sector, reserved basic industries such as steel and fertilizers for the government because they required large amounts of capital, which the private sector could not raise back then.

Tata Steel’s employee unions prevented the government from nationalising Tata Steel. They said the Tatas cared for their employees’ well-being, and they were proud to work for the Tatas. Tatas had been the first to introduce a provident fund and other welfare measures for its employees even before such policies were implemented in the Western world. Tata Steel’s shares were treasured by older persons as reliable insurance for their old age. With union support, Tata Steel remained in private hands as a role model of a socially responsible business enterprise.

Ratan Tata took over the leadership of the group when the Indian economy was opened to foreign markets in 1991. In the general view, Indian industry had been shielded too much from foreign competition until 1991 and therefore was not fit for international competition. Ratan took advantage of the new freedoms given to business and made Tatas the most admired Indian business group globally. Tatas took over ailing, marquee British companies—Corus (British Steel), Jaguar Land Rover, and Tetley Tea. This has come to be viewed as a symbolic reversal of British colonisation of Indian industry. By 2010, the Tatas had become a global organisation with more than 60% of its revenues from outside India, with investors and employees the world over, and many foreign nationals in its upper management. Along with foreign investors came foreign technologies and Western ideas of ‘professional’ business management to ‘modernise’ Indian industries.

Tata Steel’s tagline was “we also make steel,” an expression of the Tata’s social responsibility. Private sector principles that spread globally emanating from the U.S. in the 1990s were that businesses contribute to society by increasing the wealth of their investors, and ‘the business of business must be only business’. B. Muthuraman, CEO of Tata Steel, was asked by a young financial analyst in New York in 2001, in a quarterly earnings call—a new practice for Indian companies—when Tata Steel would become a proper capitalist enterprise and shake off its ‘socialist’ moorings!

When Dr. Manmohan Singh, India’s former Prime Minister, addressed the Confederation of Indian Industries’ (CII) members in 2007, they thanked him for opening the economy and for enabling them to create more wealth. Dr. Singh gave them some sobering advice. He asked them to resist excessive remuneration to promoters and senior executives. “Rising income and wealth inequalities, if not matched by a corresponding rise of incomes across the nation, can lead to social unrest,” he warned. “An area of great concern is the level of ostentatious expenditure on weddings and other family events. Such vulgarity insults the poverty of the less privileged,” he had said. Sadly, his advice was not taken. The compensation gap between CEOs and workers has increased even further. Top-level compensations have risen to over three hundred times the size of workers’ compensations (they used to be twenty times, or even less in the early 1990s). Wedding celebrations by Indian business tycoons are the most ostentatious in the world.

Manmohan Singh called on industry to be proactive in offering employment to the less privileged and encouraged CII to implement its programme of affirmative action for the social castes who had been historically deprived of equal opportunities. Sadly, only the Tatas and a few others implemented the programme. Tatas and some other like-minded industries led a movement to develop a national, voluntary code of business responsibility. They asked the Government to support it. Another business lobby proposed an alternative: compulsory spending of 2% of net profits by companies on CSR (corporate social responsibility). It would be much easier for industry to implement and for the Government to monitor. Most non-governmental organisations (NGOs) also supported this proposal. It would provide NGOs with a guaranteed source of funds. Tatas pointed out that they were already spending more on CSR.

Moreover, companies must be accountable for the impact of their operations on the well-being of society and the environment. After all, their revenues and profits flow from the consumption of their products in the societies they operate in and the natural resources they extract. 2% of net profits could be 0.2% of a company’s revenue. ‘2% CSR’ was like offerings at temples at the end of the week by the rich for absolution for sins committed during the week. It was a miniscule price to pay for the ease of doing business and making profits.

The three largest Tata enterprises have been leaders in different phases of India’s industrial development. Tata Steel before India’s independence. Post-independence, TELCO (now Tata Motors) became the largest Indian manufacturing enterprise when India became free to develop its own industries. With the abandonment of industrial policy in 1991 under pressure from the International Monetary Fund (IMF), India’s manufacturing sector languished, and China grew into the ‘factory for the world’. In this post-liberalisation phase, India leap-frogged, prematurely, into the services sector-led growth. TCS (Tata Consultancy Services) has now become the largest Indian software company and the flagship of the Tata group.

The history of Tata Steel is legendary. The British were determined that Jamshedji Tata should not succeed in using India’s own raw materials of iron and coal to produce steel. They were building the largest railway network in the world in India, with rails imported from British steel mills, to transport Indian cotton and minerals to ports for shipment to factories back home. Steel rails and woven cloth, with value added in Britain, were imported back into India by the same transport system.

The British government advised financiers in London to give Jamshedji Tata a cold shoulder when he went there to raise finances for his Indian venture. Sir Fredrick Upcott, the Chief Commissioner of the Great Indian Peninsular Railway, said in 1907 that he would “eat every pound of steel rail the Tatas succeeded in making.” The coup de grâce to British hubris was given by Ratan Tata in April 2007, when he outbid a Brazilian consortium to acquire the ailing Corus (an amalgam of British Steel and Hoogovens of Holland).

My Indian colleagues in Boston Consulting Group and I watched the progress of the auction till its nail-biting end on TV in New Delhi that day during a partners’ meeting. It was like the last over in a cricket World Cup final. When the Tata group was declared the winner, the room exploded in applause.

Tata Steel’s business case for the acquisition was the combination of its access to raw materials with Corus’ technology for production of refined steels for the automobile industry, and access to Western markets through Corus’s network. It was a decision primarily driven by Ratan to take the company ‘global’. ‘Tata values’ enabled the British government to overcome objections from labour unions to the sale of British assets to a foreign company. The group had reported that when Tata Steel was compelled to reduce its workforce by half in the 1990s to improve productivity, all employees were given wages due until their retirement age. The Tata group assured British unions they would not cut back employment needlessly to reduce costs. The promise turned out to be financially expensive. The value of Tata Steel’s shares fell with continuing losses in Corus’ operations.

TELCO was born after India’s independence with the new industrial policy to build domestic manufacturing industries. Foreign investors were invited to bring their technology and establish their enterprises’ manufacturing capabilities in India. Foreign companies needed reliable Indian partners who would learn the new technologies and manage the commercial side of the enterprises.

The automobile industry (cars, trucks, buses) has played a significant role in the development of manufacturing industries in many countries. Automobiles are complex products. They comprise thousands of parts—mechanical, electrical, hydraulic, and electronic—which are produced by specialists with their own technologies. The growth of the domestic automobile industry was expected to stimulate the country’s wider industrial development. General Motors and Ford were the vanguard of growth of U.S. industries, Daimler Benz and Volkswagen in Germany, and Fiat in Italy, in the first half of the twentieth century; and later, Toyota, Nissan, and Honda in Japan, and Hyundai and Daewoo in Korea. Japanese and Korean industrial policies nurtured national champions, as Germany’s and Italy’s had done before. The U.S. protected its automobile companies and employment by raising duties against European and Japanese imports at various times. These compelled European and Japanese manufacturers to establish factories in the U.S.

Three or four joint-venture enterprises were licensed in each Indian industry, following the economic logic of sufficient scale for enterprises and sufficient competition in the domestic market. India needed wheels for its progress: trucks to carry goods around the country and buses for public transport. Four manufacturers were licensed, with equal capacities, to produce trucks and buses: Tatas with Daimler Benz of Germany, the Hinduja group with British Leyland, Birlas with General Motors, and the Walchand group’s Premier Automobile Limited with Chrysler.

The Indian government laid down a “phased manufacturing programme” (PMP). In the first phase, completely knocked down (CKD) packs with all required parts could be imported for assembly by Indian workers. Alongside, capabilities had to be created for producing parts domestically, within the joint venture’s own factories or by other domestic parts’ producers who would establish joint ventures with other foreign companies specializing in those technologies. A feasible, multi-year PMP was laid down in consultation with the foreign technology companies. They had to provide the technology required, and the local company had to develop capabilities for producing more complex components in each phase, graduating from ‘primary school’ in industry to ‘high school’ and finally to ‘university’. In the case of the automobile industry, the PMP extended to fifteen years by the end of which 90% of the content of the automobile had to be produced domestically.

Tatas turned out to be the fastest learners in the industry. Well within the 15-year deadline, Tatas were producing trucks and buses with over 95% domestic content to Daimler Benz’s exacting engineering standards, incorporating components produced by hundreds of domestic companies, large and small, around the country. The Birla and Premier joint ventures with U.S. companies failed. Tatas grew to serve 75% of the expanding Indian market for trucks and buses; Ashok Leyland catered to the rest. Tatas also established their own design and development centre in Pune, the first in Indian industry. This later spawned Tata Technologies, which now provides computer-aided design assistance to international manufacturers of automobiles and airplanes.

The technological tie-up with Daimler Benz was ended early to free the Tatas to export India-made vehicles with the Tata emblem in front, replacing the German Mercedes three-point star. By the mid-1980s, during the so-called ‘dark ages’ of the Indian economy, Tata trucks and buses were already running on roads of fifty other countries, overtaking foreign competition.

The process of a country’s industrialisation requires domestic enterprises to acquire capabilities to produce more complex products they could not produce before. Workers learn new skills. Managers of enterprises learn to apply technologies and administer processes they could not before. And government policymakers and implementers learn how to create conditions for industrialisation, which they could not attain earlier.

This process of learning and building capabilities happens in a competitive world. Therefore, late industrialisers must learn faster than those ahead of them to compete with them, and policymakers must create conditions to nurture industries in their country until they are strong enough for more open competition. Even the U.S. protected its weaker industries from stronger British and European competitors in the 19th century. Once they gained strength, American companies aspired for global markets so they could expand, and thus became champions of free trade. They railed against ‘protection’ by other countries.

Industrial policy must, therefore, be a process of rapid learning and innovation in enterprises located within the country—small and large—who grow together to create competitive capabilities, which they did not have before. Therefore, to shape an effective industrial policy, policymakers must understand how organisations and people within them learn. They must create conditions for citizens and enterprises to learn faster. Policymakers must become better learners themselves.

Since the group’s founding in the 19th century, leaders of Tata enterprises have focused on creating firms that learn faster than others: Tata Steel in the steel sector before India’s freedom, Tata Motors in the automobile industry later, and TCS in delivering software services post-liberalization. I have described the Tata process of learning in my book, The Learning Factory: How the Leaders of Tatas Became Nation-Builders.

I now turn to the Nano car project, which Ratan Tata led. The Tatas were invited by the Communist government of West Bengal to set up a factory in the State to produce the Nano. The government provided a large, strategically situated plot of land in the middle of a rich agricultural area. It was celebrated in the business press as a victory of capitalism over communism. Farmers complained that this was not the Tata way of building an industry. The Tatas had always ensured the welfare of local people when they built factories around the country, in Jamshedpur, Pune, Mithapur, and other places.

The Nano project led to the demise of the Communist government in West Bengal—the longest-serving, democratically elected communist government in the world. Mamata Banerjee, leader of the All India Trinamool Congress, turned the tables on the communists. She stood up for the peasants. ‘Ease of living’ of common citizens is more important than ‘ease of doing businesses’ for capitalists, she declared. Tatas decamped to Gujarat where then Chief Minister Narendra Modi, a champion of the World Bank’s ease of doing business framework, readily provided land to Ratan Tata. However, the Nano did not create any significant employment in Gujarat either. The Tatas ceased production of the Nano in May 2018, but the factory at Sanand was deployed to produce other passenger vehicle models.

The Tata Nano, which was given the moniker the “people’s car,” received international acclaim as a groundbreaking solution for affordable transportation. Designed by Tata Motors and championed by Ratan Tata, the Nano aimed to provide an affordable, safer alternative to motorbikes for Indian families. This ambition caught the attention of international design communities, leading to the Nano’s inclusion in New York’s Cooper-Hewitt, Smithsonian Design Museum as part of its showcase on innovation. The museum highlighted the Nano’s unique value as a low-cost, minimalist vehicle, comparing it with iconic budget-friendly cars like the Volkswagen Beetle and the Model T for its revolutionary role in expanding car ownership by new segments of society.

The Financial Times noted Ratan Tata’s vision and persistence in bringing this project to life, drawing parallels between his passion for detail and the way Steve Jobs drove Apple’s product design. But the Nano was a business failure.

The Nano flopped. Indian customers didn’t want to buy cheap. They aspired for better. The Nano went up in flames. Critics described the car as a toaster on wheels.

The acquisition of Jaguar and Land Rover (JLR) brands also led by Ratan, have been less controversial and more successful than Corus. These acquisitions improved Tata’s global image. JLR also added to Tata’s revenues and profits, albeit erratically. But the firm hardly created any manufacturing jobs in India.

Tata Teleservices, another pioneering technological venture led by Ratan Tata, also failed. Tata’s misadventure in the telecom sector got Ratan personally embroiled in a public relations scandal with the exposure of his conversations with corporate lobbyist Niira Radia, while she was assisting the Tatas to get political support to salvage their investments. Entering the highly competitive Indian market for mobile telephony in the early 2000s, Tata Teleservices initially offered CDMA services, which were considered to be technologically advanced compared to GSM. The company added GSM later when CDMA did not take off. In 2009, it partnered with Japan’s NTT DoCoMo, which invested $2.6 billion for a stake in Tata Teleservices, hoping to strengthen its market position. However, the telecom sector’s fierce competition, the 2G spectrum scandal, and an escalating price war severely impacted the company. By 2014, NTT DoCoMo chose to exit, seeking a buyback on its shares as per their agreement with Tata Teleservices. But regulatory issues in India prevented the Tatas from fulfilling these terms, leading to a lengthy legal dispute.

Financial burdens mounted for Tata Teleservices, with the company reportedly accumulating debts exceeding $4 billion. To mitigate those losses, the Tata group eventually merged its consumer mobile business with Bharti Airtel in 2017, enabling Airtel to absorb Tata’s mobile customers and spectrum in a debt-free deal, with Tata Sons covering the remaining liabilities. This arrangement allowed Tata to exit the mobile market while retaining its enterprise-focused telecom ventures under Tata Communications.

India’s software industry has produced great wealth for promoters of companies, and many of these promoters have deployed their wealth for philanthropy. They created their wealth by the arbitrage between the low cost of English-speaking Indian engineers produced by the Indian Institutes of Technology, and the prices at which the companies could sell software services in foreign markets. Those engineers were valuable resources for India’s manufacturing industries, including TELCO, earlier. They were tempted away from the harder work on shop floors to the less arduous work in air-conditioned offices. The private sector reaped the benefits of government investments in world-class engineering institutions in India. They were also given incentives to invest and grow their businesses—land at low cost and extended tax holidays.

But software engineers require computer hardware to work on. India complied quickly with the Information Technology Agreement concluded by 29 participating countries at the WTO’s Ministerial Conference in Singapore in December 1996 to entirely do away with import duties on computer equipment. The Indian government agreed in March 1997, persuaded by India’s emerging software industry to reduce the hardware costs of its inputs. China signed on only in 2003. It used the shield of higher import duties to strengthen the base of its own electronic hardware sector, which has grown since then to be formidable and fiercely competitive.

India must build its own computer and electronic hardware industries quickly for its own security. The government has introduced production-linked incentive schemes to promote more manufacturing in the country. It is also re-negotiating agreements with its trading partners. Some economists continue to complain that these policies are a return to what, in their minds, were the dark ages before 1991.

V.S. Naipaul in his book India: An Area of Darkness laments about the country being stuck in its past. In its sequel in 1977 titled India: A Wounded Civilization, Mr. Naipaul despairs at the slow pace of change in the country but ends on a hopeful note. This was influenced by Mr. Naipaul’s visit to the TELCO factory in Pune in 1976, where I was working then. I arranged for him to go around the factory and to interview our workers and engineers as he willed.

Mr. Naipaul wrote: ‘The plateau around Poona is now in parts like a new country, a new continent. It provides uncluttered space, and space is what the factory-builders and machine-makers say they need: they say they are building for the twenty-first century. Their confidence, in the general doubt, is staggering. But it is so in India: the doers are always enthusiastic. And industrial India is a world away from the India of bureaucrats and journalists and theoreticians. The men who make and use machines—and the industrial revolution is increasingly Indian: more and more of the machines are made in India—glory in their new skills… An industrial job in India is more than just a job. Men handling new machines, exercising technical skills that to them are new, can also discover themselves as men, as individuals.”

Tatas have played a pioneering role in building India’s transportation industry. TELCO provided wheels on the ground to move goods and people around the country. It also exported Indian-made trucks and buses internationally in the 1980s. Even earlier, J.R.D. Tata created Air India, India’s first international airline, which was widely admired for its high standards of inflight services to which J.R.D. gave his personal attention. Air India was taken over as a national asset by the government in 1953. J.R.D. remained its chairman until 1978 when he was unceremoniously removed by the Morarji Desai government.

However, Tatas’ ventures in the airline manufacturing industry are more significant for India’s strategic security and economic development. Recently, the Tata group entered into high-value aerospace projects, from design and component manufacturing to final assembly of entire aircraft. Key developments include the 2021 Tata-Airbus partnership to produce the C-295 military transport aircraft for the Indian Air Force (IAF). Through this venture, Tata Advanced Systems Limited (TASL) and Airbus will produce 40 of the 56 aircraft locally at a new facility in Vadodara, Gujarat. This represents India’s first private-sector aircraft manufacturing facility. This will reduce the country’s reliance on imports and bolster domestic production capabilities. Besides supporting the IAF, this facility is expected to create jobs, upskill local workers, and integrate more than 125 Indian suppliers into the aerospace ecosystem.

In addition to the C-295 project, the Tata group has been active in other defence collaborations. In 2011, TASL partnered with Lockheed Martin to produce aerostructures for the C-130 aircraft, and Tata Aerospace and Defence (Tata A&D) also has a strong partnership with global companies across aerospace and defence. This consolidation has allowed the Tatas to provide a range of products from ground-based defence vehicles to airborne systems, unmanned aerial vehicles, and mission-critical components. Tata A&D’s unified approach is designed to leverage the group’s expertise across multiple defence and aerospace sectors, enabling it to undertake large, complex projects with global competitiveness.

These strategic initiatives, under the leadership of Ratan Tata and now chairman N. Chandrasekaran, reflect Tata’s vision of establishing India as a global defence manufacturing hub, advancing India’s self-reliance in defence technology, and expanding India’s role in international aerospace markets.

I am glad that Tatas are going back to their roots, to strengthen India’s industrial base, and going past the body-shopping and blatant labour-cost arbitrage practices that have fuelled the growth and profits of investors mainly in the information services sector and scores of other multi-national companies that have benefited from this.

The Tatas are investing once again in technologically complex and costly enterprises, including factories for producing computer chips. They are again nurturing domestic production webs, to produce components for assembling smartphones in Tata factories for the world’s leading brands.

Ratan’s passing has invariably forced us to reflect on India and indeed the world’s economic trajectory. Economists, many of whom have been obsessed with Gross Domestic Product (GDP) growth as a panacea for a nation’s success, have begun to admit that policies to spur GDP growth are insufficient for all-round human progress. They now realise that growth must result in more ‘inclusion’; and there must be emphasis on the ‘sustainability’ of growth—that is, its effects on the environment. The principal means by which citizens are included in economic growth is through their ability to earn incomes, that is, the jobs and livelihoods available for them. Poverty reduces when people are engaged in an economically sustainable manner in jobs that provide them adequate incomes. Other forms of income transfers, such as price subsidies for the poor, universal basic incomes, and so on, are less sustainable economically. Moreover, they do not provide people with the dignity of supporting themselves that good jobs and livelihoods do.

Sustainable jobs and ecologically mindful economic growth cannot be sprinkled into an economy by governments. They must arise from within the economy in an organic process of growth. The interaction of several forces within the economy—patterns of investments, growth of competitive enterprises, learning of new skills and capabilities, growth in demand, and so on—create jobs, and the social and economic infrastructures that are required for new paradigms of growth.

An industrial policy must address livelihoods and be geared toward enterprises that create jobs. The success of a country’s industrial policy must be measured by the number of good jobs and livelihoods it generates. The processes the policy must stimulate in the economy are rapid learning of new capabilities by enterprises, people, and even policymakers.

The evolution of India’s industrial policy stalled in 1991. Industrial policy was a bad word in the Washington Consensus’ framework that swept the world with the fall of the Soviet Union.

Open trade across national borders with freedom for capital to roam the world in search of profits was good for everyone according to a new consensus amongst economists. Open trade was good for consumers everywhere. They could buy the best products at the cheapest prices. Therefore, the opening of the Indian economy was largely welcomed by India’s business communities, the middle and upper-middle classes.

However, there’s a catch with open trade policies—citizens must be able to earn to buy the products and brands they are tempted to buy. They need jobs and incomes. The unintended consequences of India’s ‘opening up’ too fast are haunting the country now. Inadequate incomes, under-employment, and employment without social security, in agriculture, manufacturing, and even services, is creating social unrest nationwide. A fundamental review of India’s economic policies is necessary with an honest assessment of the post-liberalization policies.

There are no short cuts to investing in human assets and to sustainably grow India’s economy and industry. Depth was forsaken by Indian industry in recent decades to make profits, with the shallow, ‘jobless’, high economic growth created by free trade policies. These policies made it easier for investors to do business but harder for common citizens to earn and live with dignity. I am glad India’s policymakers appear to be seeing the light again.