A towering icon of India stumbles, raising alarms


February 16, 2009

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India | Industry

In this Nov. 29, 2008 file photo, people sit next to the waterfront in the backdrop of the Taj Mahal hotel, owned by the Tata group, after the completion of an operation against terrorists in attacks that left 164 dead in Mumbai, India. The 141-year-old Tata company, India’s oldest and largest conglomerate whose story is intertwined with that of modern India, is struggling to rally from a string of blows that have left the group drowning in condolence calls, not international applause. (AP Photo/Gurinder Osan, File)

A towering icon of India stumbles, raising alarms

By SAM DOLNICK – 7 hours ago

NEW DELHI (AP) — When Tata, India’s oldest and largest conglomerate, bought the fabled Jaguar auto brand last year, the country celebrated the gleaming trophy as affirmation of its new role as a global superpower.

What a difference a year makes.

Today, a string of blows has left the Tata group drowning in condolence calls, not international applause. Many see Tata’s woes as especially alarming because, as has been the case for over a century, where Tata goes, India goes.

“There’s a sense of foreboding and fear,” said Ramachandra Guha, a prominent historian and author of “India after Gandhi.” “If it happens to the Tatas, it means something much more than if it was happening to other companies.”

The past year, which has seen the stock price of Tata’s listed companies fall nearly 60 percent, has been perhaps the most difficult in the group’s history. Tata faces a global meltdown that is eating into some of its most high-profile brands, terrorism that scarred its landmark hotel, and political demonstrations that have crippled business plans.

Tata Motors revenues’ fell more than 34 percent in the most recent quarter, its first loss in seven years. And Tata Steel reported its first drop in quarterly profits in nearly three years.

In India, Tata is everywhere — tea, salt, steel, cars, chemicals, hotels, housing, telecommunications. The Tata group is a sprawling collection of nearly 100 companies that includes the country’s largest automaker, the largest private steel company, and a leading outsourcing firm. The companies employ more than 350,000 people around the world.

From the current chairman, Ratan Tata, to his great-grandfather, Jamsetji N. Tata, the Tata men are famously philanthropic and civic-minded. They are seen as something like national uncles: kindly, wise and dependable.

The 141-year-old company’s story is intertwined with that of modern India. The company’s founder, Jamsetji N. Tata, a young trader from India’s Parsi minority, helped usher in the industrial era when he established India’s first textile mill, its first shipping line, and its first cement factory.

Despite the racism of the British Raj, Tata expanded into steel, power distribution and hotels. Tata founded Mumbai’s grand Taj Mahal hotel after a doorman refused to let him into one of the city’s elegant hotels because he was Indian, according to the company’s own history.

After independence in 1947, Tata limped along during decades of stifling socialist-style rule that saw the government fix prices, impose strict tax laws and severely limit what a company could produce. Tata’s rivals prospered thanks to better access to officials — and, some say, fewer scruples about bribes. Many predicted the bloated Tata Group would succumb to executive squabbles and sluggish sales and splinter apart.

But then in the early 1990s, India shifted to a market economy and Tata’s fortunes took off. The country saw explosive growth, led by outsourcing companies like Tata Consulting Services. Tata led the charge with a spree of overseas acquisitions.

Tata’s purchase of Jaguar and Land Rover last March was an opportunity to strut. “The Empire Strikes Back!” was one of many headlines at the time that reveled in talk of the Indian century.

Tata “got swept up in the general mood,” said Guha. “There was this arrogance that we can go buy the world.”

Today, in the sobering light of the global recession, a harsh reality has set in. With car sales everywhere plummeting, the Jaguar and Land Rover brands have been a drag on Tata Motors, forcing the company to approach British authorities for a bailout and take the extraordinary step of appealing directly to the public for funds.

Tata Group still makes enormous profits — $5.4 billion in 2007-08. But the value of the 28 publicly listed Tata companies has tumbled from $59.7 billion last March to $24.29 billion as of Feb. 5. That does not include Corus Group, the British steel giant Tata acquired in 2007.

Tata declined several requests for an interview.

India’s economy is also shining less brightly. The International Monetary Fund predicts India’s economy will grow by 5.1 percent, a sharp drop from average growth of 8.8 percent over the last five years. The Sensex, the country’s leading stock market index, has fallen from a peak of more than 21,000 in January 2008 to around 9,100 a year later. And inflation hit a 13-year high of 12.9 percent in August.

In November, Ratan Tata issued a letter to executives across the company warning them to “drastically reduce operating expenditures” because of widening economic problems.


Tata’s most dramatic setback came on Nov. 26 when 10 gunmen launched a coordinated attack against Mumbai landmarks, the Taj Mahal hotel chief among them.

The militants were better armed and better trained than the police, and they managed to hold off security forces for 60 hours. The final death toll was 164 people, one of India’s worst ever attacks.

For Tata, the siege was devastating. Its elegant, signature hotel — for 100 years the height of Mumbai sophistication — was turned into a war zone. The famous dome was blackened by flames. The walls were pocked with gunfire. The windows were shattered by grenades.

“I was truly emotionally overcome when I saw this old, venerable, rather beautiful building going up in flames,” Ratan Tata told CNN.

Tata reopened a section of the hotel within a month of the attacks, but renovations are still under way in the older wing. While travel experts expect Mumbai’s hotel industry to recover, occupancy in the city’s hotels is below 40 percent and room rates have dropped by 15 percent to 20 percent, according to Smith Travel Research, a leading hotel research company.

The siege exposed glaring vulnerabilities that belied India’s superpower status. Officials missed warnings that militants were planning to attack Mumbai hotels. Commandos took roughly 10 hours to reach the scene from their base near New Delhi. Government forces misplayed a crucial hostage situation that left six people dead inside a Jewish center, security experts said.

Authorities are working to beef up maritime and air security, improve police training and create a new federal investigative agency, but the attacks have deeply shaken the public’s faith in the government.

Ratan Tata harshly criticized the government response as “woefully poor” and said he would hire private security firms rather than rely on state forces. “Everyone is doing their best but it’s not coming together fast enough,” Tata said.

The attacks could also damage India’s aspirations of becoming a financial power, according to business leaders.

“At some point you may say, ‘Enough is enough. I’m not going to bother with doing business in India,'” said Kris Gopalakrishnan, chief executive of Infosys Technologies Ltd., one of the largest outsourcing companies.


Meanwhile, Tata was in the middle of another Indian drama, a land rights dispute that shows the challenges of development in the world’s largest democracy.

Tata Motor’s introduction of the world’s cheapest car, a $2,000 engineering triumph called the Nano, sparked global excitement. However, the ambitious project was upended by protests among the rural poor who felt they had been unfairly compensated when their land was purchased for Tata’s factory.

For almost two years, farmers and local populist politicians protested until Tata was forced to shutter its factory in the communist-ruled state of West Bengal. The company had to move to a more business-friendly state, delaying the much-hyped project by up to a year.

The dispute tarnished what was supposed to be the shining star of Indian manufacturing ingenuity and could scare off potential investors, analysts say.

“It affects India’s image as not an easy place to do business in,” said Ashutosh Goel, an auto analyst at Mumbai’s Edelweiss Capital. “There are bureaucratic hurdles, there are administrative hurdles, there are legal issues, there are labor problems.”

It was hardly the first time that the tug-of-war over land scuttled a major project, and in a country with nearly four times the population of the United States crowded onto one-third the space, it’s not likely to be the last. Rural Indians see land as a sacred link to previous generations and a guarantee of security for future ones. For industry, those traditions — combined with rising land prices — have made for big problems.

In Nandigram, also in West Bengal, clashes between farmers and police left dozens dead in 2007 and forced authorities to scrap plans for a shipyard and a petrochemical plant spread over 22,000 acres of farmland. Steel plants being built in the neighboring state of Orissa have also sparked violent protests by farmers and kidnappings of executives.

Analysts say the problems will only get worse.

“Land is going to be a more scare commodity, which will give rural people the right to demand a leverage,” said Onkar Goswami, chairman of the consulting firm CGR Advisory. “It’s a big blow.”

He was referring to the Nano project, but the sentiment extended to much more.

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  1. vaibhav aksh

    it’s about a developing economy:
    the surroundings of a society.

  2. vaibhav aksh

    it’s about a developing economy:
    the surroundings of a society.