The Tata Story
Dipankar Dey
Mr Ratan Tata, the Chairman of the Tata Group of Companies, made a press statement on August 22, 2008 expressing his willingness to ‘pull out’ of the Singur project. In response to such an unwarranted statement, it has been very rightly pointed out by Mr. Ravindra Kumar(“Mr Tata must reflect : taking his factory away will not solve the problem”, The Statesman, August 24, 2008) that the Tata project management team ‘has done little to address the social impact of the investment’. Mr Kumar has also reminded that ‘Mr Tata is as Indian as West Bengal. If there is any problem in West Bengal, it is as much Mr Tata's problem as it is any one's else. Taking his factory away will not solve the problem’. On September 2, Tata Motors has communicated through an official release that the company was ‘evaluating alternative options for manufacturing Nano car in other company facilities and the detailed plan to relocate the plant and machinery to an alternative site is under preparation.’ The announcement came at a time when the honorable Governor of West Bengal Sri Gopal Krishna Gandhi had taken an unprecedented initiative to resolve the crisis.
It may be recalled that in March 2006, Tata Motors had announced their intension of establishing an automobile plant at Singur, West Bengal and the company decided to roll out, by 2008, a small and cheap car ‘Nano’ priced at US $2000. According to the Managing Director of Tata Motors, among other sites, they had chosen Singur ‘for its locational advantage - link to Kolkata, airport, port, railway and highway’. From this statement, it becomes evident that the company has planned an ambitious project of rolling out ‘250,000 vehicles per year with flexibility to raise it to 350,000 per year’; targeting both the foreign and domestic markets and the Singur plant plays an important part in their global business strategy.
The MD of the Tata Motors has confirmed recently that as West Bengal did not have adequate high quality suppliers', they thought it appropriate to invite ancillary units to invest alongside with the Tata Motors. These included well known and reputed multinational and Indian companies like Bosch, Behr, Gabriel, Exide, Caparo, Kinetic, Sona, Subros, Rico, Rasandik, Lumax, Tata Ryerson and Tata Auto Component who would manufacture sophisticated auto components for not only Nano but for other automobile manufacturers [1].
In March 2007, the West Bengal government entered into an agreement with Tata Motors on the proposed plant. It has been alleged that as the Tatas were offered several concessions by the government, both the parties felt shy of disclosing the same. A total of 997.11 acres of land spread across five ‘mouzas’ in Singur, district Hooghly, has been acquired by WBIDC. Payment of compensation in accordance with the award began on September 25, 2006. Out of the total compensation of Rs 119 crore payable to the project affected persons, till December 31, 2006, Rs 83 crore was disbursed to 9,839 persons in respect to 658 acres of land.
In March 2007, the West Bengal government entered into an agreement with Tata Motors on the proposed plant. It has been alleged that as the Tatas were offered several concessions by the government, both the parties felt shy of disclosing the same. A total of 997.11 acres of land spread across five ‘mouzas’ in Singur, district Hooghly, has been acquired by WBIDC. Payment of compensation in accordance with the award began on September 25, 2006. Out of the total compensation of Rs 119 crore payable to the project affected persons, till December 31, 2006, Rs 83 crore was disbursed to 9,839 persons in respect to 658 acres of land.
Tata Motor's strategy on the Nano draws a striking similarity with the General Motors'(GM) global production strategy of late 1980s that was based on ‘simple and flexible manufacturing plants; global sourcing of automobile parts; rapid introduction of new models; and a lean dealer net work’. This strategy had shown success in Europe and it was introduced in Brazil in early 1990s, with a goal of applying it in Asia, Eastern Europe and ultimately in the United States. Later Ford and other major automobile companies also followed the same model.
In 1997 GM made the Blue Macaw Project the centipede of its Brazilian strategy. GM chose the state of Rio Grande do Sul as the site. The project revolved around a new automobile assembly plant with an annual capacity of 150,000. The plant produced a stripped-down version of the Opel Corsa, a subcompact car, with an under $10,000 price tag. The advantages of locating in Rio Grande do Sul was that the state was close to the Southern cone's major markets in southern Brazil, the Buenos Aires region of Argentina and Uruguay. In return for agreeing to build the $600 million plant in a lightly industrialized area, GM received a package of subsidies from the state government of Rio Grande do Sul. The subsidies were reported to amount to $250 million, and the tax breaks appeared to have the potential to equal $1.5 billion over a 15-year period. GM executives maintained that in the absence of these subsidies, the firm would have located the plant in a more developed part of Brazil. In the year 2000, the GM plant employed 1,300 workers, and locally based suppliers employed another 1,300 workers. The plant housed 20 suppliers, the most important of which were US, French and Japanese companies. GM outsourced all components except power trains, body welding, body panels, paint, and final assembly.
The key component of Ford's ‘Project Amazon’ was the construction of a $700 million automobile assembly plant in Rio Grande do Sul to produce subcompact cars for' the Southern cone market. They were also offered the same subsidy package as was given earlier to GM. The plant was to employ 1,500 workers and was initially scheduled for completion in 2001. The plant had a similar design to GM's Blue Macaw plant, with suppliers of 17 parts housed under the same roof as the automobile assembly facility. Also like GM, Ford's suppliers were to be primarily foreign firms, which worked with Ford in other regions. When the new governor of Rio Grande do Sul announced in May 1999 that he was taking away Ford's subsidies, Ford decided to terminate construction in the state and move the Amazon project to a new location in Brazil. Later, after considering several other states (Parana and Santa Catarina), Ford chose the north-east state of Bahia - a relatively poor region of Brazil, as the new site for its plant. The package of incentives the Bahian state government promised Ford appeared to be even more generous than what Rio Grande do Sul had initially offered. The relocation of the plant site had delayed completion of the facility until 2002.
While analyzing the impact of such investments on the local economy, G.H Hanson (2001) in his paper ‘Should Countries Promote Foreign Direct Investment?’, raised a very important question. He asked, if it was true that the benefits of FDI for host countries were insufficient to justify FDI promotion policies, then why did host-country governments continued to offer multinationals special treatment? According to him, there were two main reasons. One, the governments felt compelled to offer concessions given that multinationals subjected their location decisions to bidding by potential host-country governments. Second, promoting such investment, served the interests of host-country politicians. Attracting multinationals either had benefited specific constituencies, from whom politicians derived support, or fitted into the political strategies of empire-building.[2] The second reason cited in Hanson's analysis aptly explains the political motives of the government of West Bengal in siding with the Tatas in this controversial project.
From day one, the Singur project has remained controversial mainly on land issues. Many land owners whose lands were acquired against their will, refused to accept any payment made towards compensation of their fertile agricultural land. During last two years neither the government nor the Tatas addressed this basic issue. Instead, they allowed the problem to snowball into a much larger crisis. The question is why no serious attempt has been made so far by the contracting parties to find an amicable solution to the problem? We understand that the West Bengal government and the parties in power had various political compulsions. But Tata group is managed by highly acclaimed professionals. Then why did they falter? Here we explore the probable reasons.
- This ‘pull out’ threat is a strategic move to negotiate further concession from competing states. Between March 2006 when the Nano project was announced and September 2008 when the recent ‘pull out’ threat has been made, many new developments have been noticed in the Tata Group in particular and in the world economy in general. The costly take over of Corus, Jaguar et al and the recent order of the arbitration tribunal of the International Chamber of Commerce to Tata Communications to pay $19 million damages to a rival telecom firm belonging to Anil Ambani Group of companies have put substantial strain on the financial health of the Tata group of companies. Moreover, major fluctuations in the value of dollar have raised the question mark on the viability of the project at the committed $2000 pre-launch price of Nano. Any delay in project implementation due to reasons ‘beyond their control’, would justify a rise in the price of the car. Meanwhile, taking advantage of this impasse, possibilities of getting better financial incentives from other states, which compete with each other following a ‘race to the bottom approach’ for attracting investment, could be explored. In 1999, Ford followed a similar strategy (refer to Amazon project) in Brazil.
- In future, during any negotiation to over come this stalemate, Tata Motors would ask for SEZ status for Singur project. The main objective of the Singur plant is to cater the expanding car markets in the ASEAN region. It can wait for few more months till the Stilwell road linking East Asian countries with India is fully repaired. Constant rejection by the Tata Motors to accept any proposal to shift the ancillary units to the other side of the road; indicates that Tatas must be having a larger plan for Singur. If they are ready to relocate the entire plant to other states why cannot they agree to relocate the ancillary units across the road? Probably, this vacant land is already a part of their Phase II expansion plan. Unlike Jindal's green field steel plant at Shalbani and Videocon's site at North Bengal both of which have received the Special Economic Zone (SEZ) status, till date, Singur project has not been considered as SEZ. We understand, the minimum land size of a project should be 1000 acres to be eligibility for getting the SEZ status. They are likely to bargain for the SEZ status during next negotiation. SEZ at Gopalpur on Sea which has been awarded to the Tatas who earlier acquired 4000 acres of land for a steel plant that was not built, is a case in point.
- Tata management has failed to understand the emotional attachment of rural people to land. Confidence on their professional acumen might have acted as a barrier and did not allow the top Tata management to learn from previous controversial projects. Few such examples are cited here in brief.
Shrimp Culture at Chilka Lake: Till the year 1991, there was no distinction between capture and culture sources. In early 1990s, the Orissa government had laid down some guidelines (popularly known as “1991 lease policy”, that became effective from January 1, 1992) which divided the whole fishing sources of the Lake into 'Capture' and 'Culture' and allowed the non-fishermen of the locality to involve themselves in 'Shrimp Culture' in the Lake. It was observed that that after the introduction of shrimp culture in Chilika Lake, illegally during 1980s and legally during 1990s, fish captured from the Lake had been declining gradually. The reverse was the case in Culture. Moreover, with the lease policy of 1991, the export of shrimps from culture sources had steadily increased. In 1991, a protest movement in the name of Chilika Bachao Andolan (CBA) or Save Chilika Movement was started by a large number of local traditional fishermen when the proposed integrated shrimp farm project of Chilika Aquatic Farm (a joint project by OMCAD of government of Orissa and Tata) was being implemented. Subsequently, with the involvement of intellectuals and environmentalists, the protest was transformed to an environment protection movement compelling the Tata to withdraw from the proposed project. After Tata had left, the same site was used by the 'mafias' and 'outsider's for shrimp culture. In 1999, the local fishermen started-a 'Do or Die' movement, demanding among others, for a total prohibition of shrimp culture in the Lake. In May 2000, the villagers destroyed 11 illegal prawn farms. The police reacted violently and four activists died.
Gopalpur on Sea: In early 1990s, Tata Iron and Steel Company (TISCO) planned to build a new steel plant and began scouting for a suitable coastal location with a deep port facility. It was decided to locate the plant on the west coast. Fast growing steel markets, too, were then in the west. As the search spanning Gujarat to Kerala yielded no good location, it was narrowed down on Gopalpur. Between 1995 and 2000, the Tata Iron and Steel Company (TISCO) had struggled to set up the steel plant but the Gopalpur project progressed no further. Nothing happened on the required railway link from mines in North West Orissa to the proposed steel plant and on the port front, which was the onus of the State Government to develop.
Tata Steel had spent an estimated Rs 160 crore to acquire some 4,000 acres of land besides creating basic infrastructure. The then Prime Minister of India laid the foundation stone. The project was to displace 20,000 people from 25 villages. In August 1997, two women died after police opened fire at a protest rally in Sindhigaon. Tata claimed that nearly 10,000 people who were evicted to make way for the proposed steel plant were accommodated in a state-of-the-art rehabilitation colony. Before more people could be evicted, the proposal was shelved due to public opposition.
Tatas did not return the land to the peasants, it acquired earlier. With the steel plant at Gopalpur no more a priority due to the changes in the international steel markets, the acquired land became part of the planned Gopalpur Special Economic Zone (SEZ). In 2002, the government of India in its 2002-2007 Exim Policy had announced various incentives to SEZs. The government also approved 13 new SEZs, including Gopalpur. It was reported that the incentives for SEZs as disclosed in the Exim Policy had 'brought cheer' for the Tatas with Rs 160 crore locked in land purchase,
Tata's Gopalpur SEZ got the clearance from the Board of Approval (BOA) on 31st May, 2007. The Reliance Group headed by Mukesh Ambani was the other competitor. The 4000 acre land already acquired by them must have tilted the balance in their favor. Now the path is clear for Tatas at Gopalpur with a much larger project than the previous one. The SEZ at Gopalpur is to be the first of its kind in the state and among others; approximately, 40-42 thousand people, who directly depend on Kewda cultivation (a fragrant wild flower used as a base by the perfume industry) in the region, will loose their lively hood.
Kalinga Nagar: In November 2004, Tata Steel signed a MoU for setting up a six million tonne green field integrated steel plant at Duburi in the Jajpur district at an estimated cost of Rs 15,400 crore The land was acquired in 1992 itself by the Government. At that time, people were paid Rs. 37,200 per acre. Tata's paid Rs. 300,000 per acre for around 2400 acres of land. In December 2004, TISCO had paid the amount and started the construction of boundary wall by August 2005. On January 2, 2006, Hundreds of Ho men, women, and children from the Kalinganagar Industrial Estate arrived at the plant site and demanded that work be stopped until those already evicted by this and other projects in the area were adequately rehabilitated. Police retribution was swift and bloody: 37 injured and 13 dead, including 8 men, 3 women one 13-year old boy 'all tribal' and one policeman. Facing strong resistance from the land losers, further work at the project site was suspended. Condemned as one of India's worst incidents of state excess against indigenous peoples, the events of January 2 also trashed the image of Tata. However, Tata Steel spokesperson downplayed the violence as 'A stray incident [that] should not derail a good thing.'
In July 2008, Tata Steel Managing Director told reporters that the company had already procured equipment and machineries worth Rs 6,000 crore from Germany, China and other countries for its proposed plant at Kalinga Nagar and construction of the plant will start shortly.
Bangladesh: In 2004, the Tata Group had first proposed to invest USD 2 billion in the country in 2004 and struck a provisional 15-year gas and coal supply agreement with the government ruled by the most corrupt politicians in recent time, most of who have been put in jail by the present care taker government.
In April 2005, they formally submitted a USD 2.5 billion investment proposal and then revised it to around USD 3 billion to set up a 1,000 MW power plant, a steel mill and a fertilizer unit. The proposed Tata investment was primarily aimed at taking away the limited amount of non-renewable mineral resource (namely gas and coal) that the country has. Basically it was a proposal to export Bangladesh's gas in another form. Under this proposal, the gas will be used to produce steel and fertilizer, much of which will be exported to India and other parts of the world. From day one Tata projects faced opposition from the general citizens of the country. In July 2008, the Group scrapped its ambitious investment plans in Bangladesh as the new care taker government was not in a position 'to grant the projects the natural gas commitment they would require.'
Dhamra Port: The Dhamra port being built by the Tatas close to the Gahirmatha beach (Orissa), is one of the world's largest nesting grounds for the endangered Olive Ridley sea turtles. On a May evening (2008), Greenpeace volunteers lit thousands of candles in front of Tata House on the Colaba (Mumbai) seafront to prevail on its most famous resident, Mr Ratan Tata, to shift his company's upcoming port project from Dhamra in Orissa to help save the endangered species. 'People have been asking him for several years now to look for an alternative to this destructive port in the interests of protecting one of the world's last mass nesting grounds for this enigmatic and peaceful creature, which has been around for millions more years than Tatas have!', commented a Greenpeace volunteer. International banking giant BNP Paribas recently confirmed that it would no longer refinance a part of the Dhamra Port.
A brief analysis of the controversial ventures as above reveals that all these Tata initiatives suffered from the same drawback of ‘doing little to address the social impact of the investment’. It is claimed that one of the major changes that Mr Ratan Tata had bought about in the Tata House after he succeeded JRD Tata in mid 1980s, was the group's attitude towards government. Till then the government role was treated as a regulator only. In the changed situation, they decided to involve the government as their business partner. Tata's involvement in the Karnal refinery project with Indian Oil Corporation (which did not take-off), Ratan Tata's acceptance of the Chairmanship of Air India and his close advisory relationship with Rajiv Gandhi could be cited as an indication towards this change in attitude about the government. All the above controversial initiatives including the Singur project were the outcome of such a strategic move where the Tatas had developed alliance with the respective host states to extract maximum benefits for their projects.
This symbiotic relationship between the state and large capital had worked successfully throughout the 19th and most decades of the 20th century. The same model will not work in the 21st century when it is expected that the voluntary and' not for profit' characters of the civil society organizations (CSOs) would play an increasingly larger role in steering the course of society. CSOs achieve a high level of social influence by exercising cultural leadership. In addition to this, these organizations (also referred as non governmental organizations - NGOs) exhibit four other distinct strengths namely legitimacy, awareness of social forces, distinct networks, and specialized technical expertise.[3] In this changed situation, any corporate house — large or small, cannot afford to ignore CSOs. Failure to scan macro environment properly led to the down fall of many large multinational firms, including East India Company. Mr Ratan Rata may take note of this.
Refrences
- Ravi Kant's letter to Mamata Banerjee, Telegraph, August 29, 2008
- Hanson H Gordon, 2001, Should Countries Promote Foreign Direct Investment?, G-24 Discussion Paper Series, No9 (UNCTAD/GDS/MDPB/G24/9), UNCTD and Center for International Development, Harvard University, United Nations, February
- Yaziji M,2004, Turning Gadflies into Allies, Harvard Business Review, February
