For a low-profile Indian to dream of setting up a steel plant in pre-Independence India, at a time when colonial rulers considered even private production of lowly salt an act of treason, required audacity of a very high order. But Jamsetji Nusserwanji Tata was nothing if not audacious.

Even so, so sceptical of Indian manufacturing capability were some Britons that the Chief Commissioner for Indian Railway, Frederick Upcott, made one of the most fatuous challenges ever. “Do you mean to say,” he asked rhetorically, “that Tatas propose to make steel rails to British specifications? Why, I will undertake to eat every pound of steel rail they succeed in making.”

History has no record of whether Upcott was able to digest his own words that he was compelled to eat, but it’s a good thing Jamsetji didn’t let such blustery talk faze him. For today, 109 years later, Tata Steel stands testimony to its founder’s steely resolve, its reputation as the world’s 10th-largest steel company (by tonnage) burnished by a track record of manufacturing excellence, constant modernisation, and — not least — a caring commitment to its labour force and the communities of which it is a part.

Along the way, Tata Steel has been tested several times over – by post-Independence statist government policies that fettered the private sector; by the challenges of competition, when protectionist walls fell; by the vicissitudes of global commodity cycles that sometimes turned against it; and by its management’s own rare departure from business conservatism, which manifested itself in miscalculations and overreach while going for overseas acquisitions.

But it has always emerged stronger, tempered by the fire of adversity, much like the steel it manufactures.

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Tata Steel: Then and Now

Early challenges Jamsetji’s vision, and the artful manner in which he won British backing for his steel project, is the stuff of biz school folkore. In The Romance of Tata Steel, author RM Lala chronicles how Jamsetji sought to capitalise on Lord Curzon’s liberalisation of the Mineral Concession Policy, travelled to London to secure the support of Lord Hamilton, Secretary of State for India, and then went to Boston to enlist the services of geologist Charles Perin in finding mineral resources back home.

That search led him to a site near Sakchi (current-day Jamshedpur, named after Tata Steel’s founder). But raising funds proved more difficult, particularly after the Tatas drew a blank in the UK. Once Tata Iron and Steel Company (TISCO, as it was then known) was registered in 1907, the Tatas raised ₹23 million in capital, and construction got under way.

As Rudrangshu Mukherjee points out in A Century of Trust: The Story of Tata Steel , British government support, particularly the offer to buy 20,000 tonnes of steel rails every year for ten years, proved critical in the early years.

The War effort The outbreak of the First World War saw TISCO ramp up its output, but given that the administered sale prices were well below market prices, the company’s bottomline was not helped much. In the early 1920s, when international iron and steel prices crashed, TISCO’s profits shrank to a tenth of what they had been two years earlier.

In 1924, another crisis struck when the Imperial Bank of India (current-day SBI) demanded additional collateral on loan outstandings; Jamsetji’s son Dorabji bailed out the company by pledging his entire personal fortune, including his wife’s jewellery.

After a few patchy inter-War years, when TISCO sought and secured protection from cheap imports, TISCO’s steel production again revved up with the Second World War.

Freedom but no free market The dawn of Independence was infused with optimism, but given Jawaharlal Nehru’s fascination with the Soviet model of state-led industrialisation, TISCO had to bide its time and watch as public sector steel plants – Bhilai, Durgapur, Bokaro – came up.

Any efficiencies that TISCO may have had were effectively neutralised by government controls over production and pricing, which extended for the next four decades. Indicatively, in 1955, the government allowed TISCO to hike steel prices, but also stipulated that additional profits must be utilised for capacity expansion — or else turned over to the government! Constrained thus, TISCO’s steel sales took 30 years to double from 8 lakh tonnes in 1950.

Sushim Banerjee, Director-General at the Institute for Steel Development & Growth, offers an insight into the workings of the licence-raj era. “The Joint Plant Committee (JPC) in the Steel Ministry would collate demand numbers and allot quantities to producers at pre-determined prices.” Of course, manufacturers found inventive ways around price controls – by tweaking their product mix.

Banerjee acknowledges that price controls were perhaps felt necessary given the steel shortage, which would have pushed up infrastructure project costs. But it cramped private players and left them too cash-strapped to fund technological upgradation and capacity expansion, which might have provided economies of scale.

Tridibesh Mukherjee, who retired as Director (Technology and Integratoin) at Corus (now Tata Steel Europe) after 40 years at Tata Steel, points out that given the constraints, there was no incentive to be efficient. “Tata Steel may have been better than other steel companies, but it was still fat and slow, not at all like what it is today,” he recalls.

The modernisation phase The steel industry was unshackled somewhat in the 1980s: private producers were allowed to set up mini steel plants with capacities of up to half a million tonnes, and rolling mills were given the go-ahead, notes Banerjee.

It was about then that Tata Steel underwent modernisation, nudged by JJ Irani, who would later become Managing Director. “I remember telling (JRD Tata) in the 1980s that unless we modernised, he and I would be standing at Tata Steel’s gates selling tickets to a steel museum,” Irani has said. Over the next 20 years, as the 1991 reforms got under way, Tata Steel was totally transformed, becoming the lowest-cost producer of steel across the world. In the decade following the 1991 reforms, the fortunes of private steel producers soared. In the 1990s, they accounted for less than half of the country’s steel production; by 2001, that number grew to 70 per cent. Tata Steel sales went from 19 lakh tonnes to 32 lakh tonnes during that decade.

Global headwinds Liberalisation also opened up domestic steel companies to international competition, particularly at a time when global overcapacity combined with weak demand to drag down prices. By the turn of the millennium, however, Tata Steel began to aggressively expand, setting up plants in Odisha and Chhattisgarh. The company had a hot streak until 2007; both topline and bottomline grew.

Just at the peak of the steel cycle, Tata Steel made a bet that, with the power of hindsight, proved to be rank bad: it bid for the Corus Group, paying up $13.6 billion, the largest overseas acquisition by an Indian company.

But barely a year later, the global financial crisis dragged down economies across the world — from the rustbelt of China to countries in Europe. Even before the celebrations over the Corus acquisition subsided, Tata Steel had to reckon with the streaks of red on its balance sheets as losses mounted.

Chastened by the experience, Tata Steel has begun to cut its losses, and is selling off parts of its loss-making UK businesses – in some cases, for a pittance. It is now looking to scale back its global footprint and consolidate its profitable India operations. Some of those profits are, of course, shored by import protection measures, but at a time when the global headwinds are strong, even legendary companies such as Tata Steel will be happy to take whatever they can get – in the hope that if they ride out this storm, they’ll be well-positioned to ride the next steel cycle, whenever it may come.

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