TATA and The Indian Economy

Take a trip to the southern Indian state of Tamil Nadu and you will see the frontier of Indian capitalism. There, you will find several solar factories that are powered by the sun. They are located on a 550-acre site. According to reports, Tata is currently making components for Apple’s latest iPhones, which is a significant step towards connecting India to the global supply chain. The project, which is part of a massive $90 billion investment drive by India’s biggest business, is not a one-off. It is part of a larger strategy by Tata, which is shifting its focus away from the global market and toward its home country. The company’s goal is to create multiple semiconductor facilities and electronics factories in India. The company’s new strategy reflects the changing mindset of global business leaders, who are now more focused on the future than the past. Some of these include the rebasing of manufacturing operations away from China and the emergence of a new energy system. Prime Minister Narendra Modi’s government is also working on developing an industrial policy that is expected to encourage more manufacturing in the country.

Most people who follow India assume that the country’s rapid growth is being led by two powerful business tycoons: Gautam Adani and Mukesh Ambani. These two individuals are known for their lavish lifestyles and are known to generate headlines. Together, they are expected to spend over $100 billion in the next five years. Despite the lavish lifestyles of these two individuals, Tata is India’s biggest business by market value. It is also one of the country’s largest software companies and steel mills. Its new strategy is significantly larger than that of other companies. In addition to electric cars, the company’s new plans include the establishment of multiple semiconductor facilities and the development of clean power plants. The company’s scale, reputation, and record make it one of the most important organizations in the world. With around 800 million to 900 million customers across various business lines, it is the largest listed firm in the world that employs over a million people. It is also the oldest firm in the world that has remained independent, having been founded in 1868.

Tata: Known as the company of Technocrats

When multinational companies such as Apple and Starbucks decide to expand their operations in India, they often look for a partner that they can trust. This is because, unlike the rich individuals in the country, the management of Tata is composed of technocrats who are not looking to make a name for themselves. To understand the future of India and Tata, it’s important to go back to the past. Through its various business lines, the company has been able to adapt to the changes brought about by the country’s political and technological developments. It was able to maintain its position as a leading multinational company by adapting to the changes in the white-collar work market. During the 1990s, the company started to introduce information technology outsourcing services.

Ratan Tata, who served as the chairman of the company from 1991 to 2012, spent the first decade of his career dragging the group into the 21st century. During this period, he was able to successfully expand the company’s global reach through cross-border acquisitions. Some of these acquisitions included the purchase of British carmaker Jaguar Land Rover and the steel company Corus. During this period, Tata was able to successfully expand the company’s global reach through cross-border acquisitions. He was able to share his belief in the potential of borderless commerce with other business leaders. During this time, the annual investment by Indian companies in other countries increased significantly. The company’s optimism and insecurity were the reasons behind the boom. In India, Tata was worried that the country was not providing a level playing field for its companies. It was also believed that foreign companies needed to be in the West to tap the country’s advanced technologies. During this period, the company launched the Nano, a car that was very basic. The era of reflexive globalism has come to an end. Due to the increasing number of multinational companies operating in different countries, the financial strength of these organizations has been affected by the geographical spread of their operations. For instance, in 2012, over two-thirds of Tata’s sales were outside of India.

The company’s net debt had increased to twice its gross operating profit. This strain caused a governance crisis as Mr Tata was unable to maintain his relationship with Cyrus Mistry, his successor. In 2017, Tata replaced him with N Chandrasekaran, who had been the group’s managing director and had led the thriving business unit that kept the company afloat. The rise of N Chandrasekaran to the top of the Asian business community shows the significant change that has occurred in the technological self-confidence of emerging markets. In the past decade, India has created a venture-capital scene and developed some of the most advanced payment systems in the world. This has helped fund over a hundred private tech companies that are worth over $1 billion. As the increasing number of it-services companies, such as Tata, has led to a doubling of their size and technical capabilities. Even though the company might not like to admit it, Mr. Ambani’s decision to invest over $46 billion in a domestic 5G telecom business, known as Jio, has shown that there is a huge potential for companies in developing economies to profitably deploy capital in cutting-edge technology. The increasing number of tech companies in India has been attributed to the country’s changing relationship with the state. Under the leadership of Prime Minister Narendra Modi, the government has been promoting the development of a new relationship between businesses and the state. There are numerous opportunities for companies in developing economies to capitalize on these changes. The usual suspects are not at their best. India’s state-run companies are failing. Foreign multinationals have not been able to create a conducive environment for industrialization and technological breakthroughs. The capital markets have also failed to create sufficient firms to take on big risks. The last investment cycle, which ended in tears, was the infrastructure boom of 2003-11. And the government and some of its officials now favor large companies. These include conglomerates and specialist firms such as HDFC Bank, which is in the process of completing a mega-merger worth over $140 billion.

Some of the prominent companies that have adopted this strategy include Mr. Ambani’s Reliance Industries and Adani Group. They believe that the country’s changing relationship with the state and the need for responsible business can be mutually beneficial. On the other hand, some of the more cautious companies are making a bet that the demands of the state and responsible business can be met. As the CEO of Tata Sons, Mr. Chandrasekaran is a quick and ultra-rational individual who is known for his ability to quickly respond to emails. He has also ordered the company’s subsidiaries to deliver on their performance. Since 2017, the company has written off around $10 billion due to various factors. Some of these include the company’s exit from certain businesses, and the recapitalization of its weaker divisions. Some of Tata’s domestic rivals have started to get their act together. The company’s cyclical steel business is thriving, and its market share in cars has increased, especially with the launch of the Nexon EV, which costs around $17,000 more than the Nano. The company’s clean-up operation is nearly two-thirds complete, and as a result, its return on capital has increased by 14%. The share of capital that is underperforming by 10% has significantly decreased. Leverage has also significantly decreased. Since 2017, the stock price of Tata Sons has outperformed the country’s stock market. The company’s legal battle over the succession of its CEO ended following the Supreme Court’s ruling in its favor last year. For the first time in over two decades, Tata has become more Indian. In 2017, the company’s sales from the subcontinent grew at a faster rate than that of foreign companies. The company’s plan for the next five years is to invest around $90 billion in various projects in the country. These projects are expected to help the company develop its technological capabilities and meet the government’s needs.

There are various plays that Mr. Chandrasekaran is currently focused on, such as manufacturing for export and growing consumption in India. He believes that the country’s growing middle class and increasing number of foreign direct investment can create a significant supply chain opportunity for global companies.

Chandra’s capex challenge

According to estimates, the company’s annual capital spending will increase to around $18 billion, which would make it India’s biggest investor. It is also expected that new high-tech businesses will start to emerge from its operations in the country. If all goes well, this could increase the company’s capital employed to half by 2027. These are significant shifts for both the company and the country. Around 77% of the company’s new investments will be in India. The company’s plan for the next five years is to invest around $90 billion in various projects in the country. One of these is the energy transition. Through its power subsidiary, Tata will spend around $10 billion on renewable generation over the next five years. It is also planning on building gigafactories in Europe and India, which will allow it to supply its own cars and other manufacturers. In addition, the company’s car operations in India will launch ten new models. It will also start manufacturing solar panels. One of the company’s other bets is in electronics. It has already invested $1 billion in the country’s electronics manufacturing industry, which mainly pertains to the company’s operations in Tamil Nadu. It is also planning on making 5G telecommunications equipment using the Openran standard. This will challenge Huawei, China’s hardware-focused champion.

In addition, the company is also planning on building a new semiconductor factory in India, which will be the company’s first fully fledged facility in the country. It is currently in talks with a foreign partner to build the facility, which could cost around $5 billion. The factory, which would not be as advanced as the one in Taiwan, would not be able to make chips as advanced as those made by the TSM. It would be a huge challenge for Tata Group, as Mr. Chandrasekaran noted that it would be a leap for the country. Other companies such as Foxconn and Vedanta, which are Indian-focused firms, have also shown interest in setting up a plant in Gujarat. On September 13, both Foxconn and Vedanta announced that they would be investing over $19.5 billion in a plant in the state. Another gamble that the company is taking is the Indian consumer. In April, it launched a digital platform called Neu, which aims to be a “superapp” for its customers. It has already managed to gain 17 million users since it was launched, but the company is planning on continuing investing in the startup ecosystem. This is because many of these companies are struggling to raise funds due to the global venture-capital crunch.

Tata overtaking other Businesses

Air India, which has been struggling for years, is another gamble that the company is taking. Before you get too excited, consider that it has acquired international slots and was able to get debt-free after it was purchased from the state. It is also planning on merging with another domestic airline, Vistara, which it has with Singapore Airlines. The goal of this project is to create a powerful national carrier, similar to what Lufthansa or Emirates have in the world. According to reports, Tata is expected to order around 300 new aircraft. As a conglomerate, Tata Group is planning on continuing to expand its geographic concentration. However, it is also planning on maintaining its sectoral diversification. In emerging economies such as India, conglomerates have advantages such as their brand presence and strong regulators. However, they can be very complex due to their multiple legal and operating subsidiaries. Mr. Chandrasekaran is currently on the board of several listed companies. Despite being a large company, Tata Group does not have global scale in various industries. Its $1 billion bet on the electronics industry is equivalent to 8% of Foxconn, which is a leading contract manufacturer. The company also has a huge investment in batteries, which is 40% of the plant of China’s top tech firm, known as catl.

In India, Reliance Industries has two main businesses: refining and 5g. This allows it to double the capital of its subsidiaries. However, lack of focus on these areas could make it harder for the company to achieve technological breakthroughs. One of the world’s biggest chipmakers is also skeptical that India can build a competitive semiconductor manufacturing facility. One of the biggest risks that the company faces is its ownership structure. Through its various charitable trusts, which are chaired by Mr Tata, the group has a total of 66% of its subsidiary, Tata Sons. These are asset-rich, but they are also very income-poor, with the dividends distributed to the trusts amounting to less than 1% of the group’s operating profits. The third layer is controlled by Mr Chandrasekaran, and these are the holding companies that he runs. Some factors could also destabilise the structure of the company. The death of Cyrus Mistry, as well as his father, in June, could cause his family to re-evaluate their 18% stake in Tata Sons. This would require the company to raise around $27 billion in order to fund the purchase. Even though Mr Tata is 84 years old, he is still physically frail and mentally sharp. When he retires from the trusts, it is not clear who will take over as the interim leader of the board of directors. The hope is that a consensus emerges and a credible candidate emerges who doesn’t meddle in the company’s operations. Another potential issue is the government. Prime Minister Manmohan Singh’s critics are accusing him of presiding over crony capitalism, which they claim is over the top.  In India, the country’s business scene is less concentrated, with the four largest companies having operating profits of 1.1% of GDP, compared with 1.2% in the US. Unlike traditional rent-seeking firms, the country’s large corporations are aggressively reinvesting in their operations. Even though Tata doesn’t consider itself a political organization, it has paid tribute to Mr Modi’s populist nationalism by visiting the headquarters of a Hindu-chauvinist group that supports the Gujarat Chief Minister. In addition, the company’s charitable trusts are working more closely with the state government. Despite this, Tata is still participating in the $26 billion manufacturing-subsidy program, which the company claims is too small to influence its investment decisions. Despite the positive signs that the government and Mr Modi’s firm have been able to bring about, the outlook for the country’s economy may change. Unlike the chaebol in South Korea, which made it rich by exposing the country to international competition, some of India’s large companies are only eyeing the domestic market. As the country’s large companies expand their operations, they will inevitably overlap, which raises questions about Tata’s ability to receive equal treatment. For instance, if some of its new ventures fail, can it still be assured that it can still exit even if it loses a significant portion of the country’s competitive landscape? Some of the reasons why Mr Tata was reluctant to invest in India during the 2000s remain. However, if the country can finally be industrialized and become a manufacturing hub for the world, then he and other large companies such as Tata can finally make a significant contribution to the country’s development.

Vaibhav Tomar
Vaibhav Tomar
Vaibhav Tomar is research associate at CESCUBE. He is highly interested in International relations, great power competition in Indo Pacific, Maritime security, emerging warfare concepts and military strategies. And has experience in primary and secondary research. He can be reached at vtomar866[at]gmail.com.