How India’s largest business conglomerate is on track to transform itself and the country’s economy
Siddhartha Tripathy
For a nation that is expected to progress at a pace enough to become a US$5 trillion economy before the end of this decade and a developed one within the coming 25 years, a lot of right things have to happen at the right place at the right time.
The recent nomination of Ratan Tata, the iconic former chairman (currently chairman emeritus) of Tata Group and Tata Sons who still heads the Group’s charitable trusts, as a trustee of the Prime Minister’s Citizen Assistance and Relief in Emergency Situations (PM CARES) Fund was something that the whole nation took notice of.
The Tata Group – India’s largest business conglomerate that runs operations in around 100 countries worldwide, whose products and services span six continents, and which generates an annual revenue of US$128 billion at present – recently announced its plan to invest US$90 billion in new-age industries, such as mobile electronics, semiconductor fabs, renewable energy, electric vehicles (EVs), e-commerce and batteries, over the next five years.
At the same time, the Group is also shifting further away from its three-decades-long mission of global expansion to focus more than ever on its domestic market.
The move is historic indeed. It marks not only a strategic switch in keeping with megatrends that saw the Group incur losses in the international market over the past decade, but also a psychological shift that is in perfect sync with Prime Minister Narendra Modi’s vision of ‘Atmanirbhar Bharat’ – a self-reliant India whose manufacturing sector would compete with that of China rather than being dependent on it, and whose industry and energy sectors would reflect a successful alignment of national development targets with global climate change goals.
Thanks to the nature of media coverage, the general impression these days is that the Indian economy and its growth is driven by Reliance Industries Limited (RIL) chairman Mukesh Ambani and Adani Group chairperson Gautam Adani. The two tycoons regularly feature among the richest people on the planet and also hog the headlines for their aggressive business plans. However, RIL and Adani Group’s planned investments over the next five years – of US$75 billion and US$55 billion, respectively – pale in comparison to the Tata Group’s.
The Group remains the biggest and most diversified business of India, with the combined market capitalisation of its 29 publicly listed companies standing at US$311 billion (as of March 31 this year). Equally importantly, its size, credentials and reputation, not to mention the scale of its ambitiously forward-looking plans, easily make it one of the world’s most important companies. To serve its 900 million customers across almost a dozen lines of business, the Group employs around a million people – third only to Amazon and Walmart as a global job provider.
It is no secret that most international blue-chip companies seeking to do business in India prefer to do so in partnership with Tata Group. The goodwill it enjoys and the confidence it inspires is thanks to its impeccable historical record, which also bears testament to its unparalleled survival credentials built on its intrinsic ability to adapt to changing times.
Founded by Jamshedji Tata in 1868, the Tata Group has seen the Indian subcontinent go through a bewildering range of social, economic, political and technological changes – and it has dealt with them more exemplarily than perhaps any other business enterprise in the country.
Jamshedji had set four big goals: an iron and steel company, a one-of-a-kind hotel, a world-class learning institution, and a hydroelectric plant. By the time of his demise in the year 1904, Mumbai had the Taj Mahal Hotel in Colaba, first ever hotel in India to have electricity. His son Dorabji fulfilled other three goals by setting up the Tata Iron and Steel company (now known as Tata Steel) in 1907, followed by India’s first hydro plant (which saw the birth of Tata Power) in 1910 and then the Indian Institute of Science in Bengaluru.
When J.R.D. Tata took over as chairman in 1938, the Tata Group was a US$100 million business with 14 enterprises. The next five decades under his leadership saw the Group become a US$5 billion conglomerate of 95 enterprises with interests in sectors as varied as cosmetics, chemicals, engineering, manufacturing, marketing, technology, software services and tea. It was during this period that Tata Motors and Tata Consultancy Services were founded in 1945 and 1968, respectively.
And when J.R.D. handed over the reins to Ratan Tata in 1991, the year that also saw the start of economic liberalisation in India and the global information technology revolution, the Group was well placed to capitalise on the fast-changing business environment within its home country and beyond by becoming a leader in IT outsourcing services and through US$18 billion worth of global acquisitions, including high-profile takeovers of Corus and Jaguar Land Rover.
The Group’s focus on global commerce set off a national trend, so much so that annual investment by Indian firms on foreign soil shot up by 4,000 percent (40 times) during the 2000-2008 period.
Unbridled optimism and a notion that the developed world was the best place to tap and leverage technological advancements were not the only reasons behind the decision of Tata Group to go global; there were concerns that rampant corruption in India would scupper its growth plans or undermine it by not allowing it to operate and compete on a level playing field. Needless to say, such concerns were not unfounded and shared by many other players who followed Tata to foreign shores.
However, this globalist route did not quite turn out to be the goldmine it was pegged to be. Most business enterprises that took the takeover route ended up seeing their financial health undermined. The Tata Group – whose overseas sales accounted for more than 65 per cent of its total sales in 2012 (the year Ratan Tata retired upon turning 75), saw more than two-thirds of its invested capital return a profit of less than 10 percent. As a result, the Group’s net debt rose to twice its operating profit.
Make no mistake, Ratan Tata worked wonders for the Tata Group. Over the course of the 21 years that he led it as a national icon, the Group saw a 40-fold rise in its revenues and 50-fold increase in its profits. Yet the strain from the Group’s losses from its overseas businesses was apparently so much that the board of Tata Sons (the holding company and owner of Tata Group) had to unceremoniously remove his successor, the late Cyrus Mistry, in 2016 for alleged non-performance and Ratan Tata had to return as interim chairman.
Mistry, who unfortunately died in a car crash on September 4 this year, then famously dragged the Tata Sons to court in a bid to clear his name and retain his position on the Tata Sons board. A five-year-long legal battle ensued, starting at the National Company Law Tribunal, which ruled in Mistry’s favour, and ending with the Supreme Court of India ruling in favour of Tata Sons.
However, a couple of facts became common knowledge due to this high-profile and protracted controversy: one, that TCS was the cash cow that went a long way in keeping the Tata Group afloat during challenging times over the past decade; and two, that Ratan Tata’s decision to appoint Mr Chandrasekaran – the man who led the Group’s IT business – as his successor was right on the money.
The elevation of Chandrasekaran to the top of Tata Group is also a function and reflection of India’s emergence as a technological powerhouse over the past decade. During this period, India Inc has seen the birth of more than 100 privately owned technology unicorns (startups valued at US$1 billion or more), not to mention the advent of the world’s largest, most advanced and most diverse payment ecosystem. Also, many IT businesses – including that of Tata – have seen a 100 percent increase in size.
It is not mere coincidence that this new wave of technological revolution in India has happened during the Modi era. Within a year of the BJP’s return to power at the Centre in 2014, Prime Minister Modi had launched the Digital India Programme, the prime aim of which was to empower and transform citizens’ lives and to create strategic capabilities in certain areas of technology. His very model of governance has been driven by technology and innovation right from the beginning of his first term. Prime Minister Modi remains committed to building a digital and technological ecosystem that can drive India towards its goal of becoming a US$5 trillion economy in the latter part of this decade.
The bad news is that state-run companies and foreign firms have not succeeded in capitalising on the business- and technology-friendly environment created by the Modi government. Although India is already the world’s fastest growing big economy, it needs to hit higher gears to realise its audacious economic ambitions.
But the good news is that the Tata Group is showing more than enough signs of rising to the occasion. Under the leadership of Chandrasekaran, the Group’s underperforming businesses are either being shut down or restructured or getting a shot in the arm with fresh investments. One of the most recent examples is the September 23 announcement about a mega merger of seven Tata metal companies with Tata Steel. The stated reason behind this move was to streamline the Tata Group’s steel business and make it more profitable.
It was also reported a few days later that Tata Sons would be slashing the number of its listed companies from 29 to 15 in the coming months so that it could focus on investing in bigger and better consolidated entities that can be more competitive in the marketplace.
While these developments happened not long after the announcement about the merger of Tata Coffee Ltd with Tata Consumer Products Ltd, there is a lot of buzz in the media these days about the imminent reorganisation of Group’s business, involving Vistara, Air India, Air India Express, AI SATS and Air Asia.
After crashing and burning in the automobile market for years on end, Tata Motors has also been scripting an amazing turnaround. Powered by the success of its recent fleet of cars boasting cutting-edge technology and design, the company has made a big comeback in the passenger vehicle segment and now stands firmly among the top three carmakers of India in terms of market share. While the Tata Nexon has been the best-selling SUV in the country for the better part of this year, the Nexon EV (electric vehicle) version alone has made Tata Motors capture the lion’s share of the Indian EV market.
As a result of such efforts and developments, the percentage of underperforming capital investments by the Group has come down considerably in the past two years (at around 50 percent), compared to what it was during the 2012-20 period (about 70 percent). Its overall return on capital (excluding IT services) has also risen from an average of around 8 percent in the past decade to 14 percent in the 2021-22 financial year.
The other good news is that the Tata Group’s domestic business over the past 10 years has grown at twice the rate as its overseas one and now accounts for around 38 percent of its total sales worldwide.
With its annual capital spending expected to be at a staggering US$18 billion, its plan to make half of its total investments in hi-tech businesses by the year 2027, and its commitment to make well over three-fourth of its new investments in its home country, Tata Group clearly seems to have positioned itself as the most significant investor in the India growth story – never mind all the talk among political and economic observers about the ‘AA economy’.
This is not to say that the Group will not face plenty of competition from other conglomerates, not to mention operational hurdles along the way, to achieve its transformational objectives. For a country as big as India, operations as wide-ranging as the Tata Group’s, not to mention the Group’s sky-high targets, impediments and setbacks will be inevitable.
But there can be no denying the fact that the Tata Group and Team Modi will be counting on each other more than ever to effect the transformation they seek.
While receiving an honorary degree in 2015 from HEC Paris, a leading global business school in France, Ratan Tata had famously said: “Anybody that says that you can’t operate in India without paying (bribes), I think, needs to look at us as an example, because we grew from about 5 billion to a hundred billion without participating in anything subjective. So, industry can grow in India and you don’t need to succumb.”
This was said barely a year after the BJP formed the government at the Centre under Prime Minister Modi. And now, eight years into the Modi era – in which crackdown on corruption has been on an unprecedented level – the Tata Group, or any other business enterprise for that matter, will no longer need to fight the menace of graft as hard as they needed to in earlier decades. They just need to focus on performance.
Similar work ethics and values, along with their common cause of taking India to new heights, is expected to power the ever-strengthening relationship between the Tata Group and the Modi government. The appointment of Ratan Tata as a trustee of the PM Cares Fund was just a reassuring instance of a right thing happening at the right place at the right time.
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