Taking a leaf out of India's success

India's economic growth in recent years has been a marvel that has lifted tens of millions, possibly a couple of hundred million, people out of poverty. It has been achieved by simply allowing business to do business, creating wealth in the process.

This, however, was not always the case in India and after independence the country embarked on a period of closed-border economic stagnation. It is perhaps not surprising that a large country like India, which had just thrown off the imperial yoke, should want to rely only on itself but the experiment failed. It created the "licence raj", which bred corruption in government and snuffed out entrepreneurial spirit before it got started. Licences were given to national champions to build, often from scratch, nearly everything that the country needed but this constant reinvention of the wheel was highly inefficient and India's economy and infrastructure suffered.

India started to liberalise its economy in the 1980s and the barriers were falling fast by the 1990s. As a result, the country has been able to ride a wave of growth during the past decade and there are now numerous Indian companies that are competing on the world stage. Take, for example, Tata, India's largest company. Founded in 1868 by a Parsi family, it has mirrored the changes in India's economy over the years. During the 1960s and 70s it was a vast and sprawling conglomerate that had monopoly rights to produce goods such as trucks for the Indian market.

However, when Ratan Tata, a member of the founding family and the current chairman, took over as chief executive in 1991 he realised that the company needed to change if it was to survive the brave new world that India was entering. He spent about a decade restructuring Tata so that it would be able to compete against its global peers. He stripped out the bureaucratic layers of management and divested non-core divisions, while forcing the remaining businesses to focus on efficiency and quality. In the process, he turned companies such as Tata Steel into global leaders.

Then, in 2000, Mr Tata decided that it was time for Tata & Sons, the holding company for the various Tata businesses, to diversify out of India in order to reduce risk and gain further international know-how. The first major acquisition was Tetley Tea, which was bought in 2000 for £271 million (Dh994m). This deal was important not only to Tata's tea division but also for Indian confidence: the colonial upstarts were buying out the imperial masters – and doing so with that quintessentially British product, tea!

Other deals in other parts of the world followed but the biggest came two years ago when Tata Steel bought Corus, which was formed out of the old British Steel, for £6.1 billion. It was Tata's biggest takeover and also India's largest foreign acquisition. Then, last year, Tata Motors bought Jaguar Land Rover from Ford for $2.3 billion and once again the Indians had bought another iconic British brand.

However, since those deals were done the world economy has changed and Tata's UK acquisitions are suffering. Demand for steel has slumped and Corus has been forced to lay off 3,500 workers, including 2,500 in the UK. A further 2,000 may go after Corus said last week that it may have to mothball a plant on Teeside in the north of England after its major customer pulled out of a purchasing deal.

Jaguar has also been hammered by the economic downturn and Land Rover sales were down nearly 20 per cent last year. The workforce has moved to a four-day week and its factories were shut down for an extended period over Christmas. Jaguar is seeking £340m in government guaranteed loans to keep its development programmes going and up to £500m more to cover its day-to-day operations.

The Indians could be forgiven for thinking that their British acquisitions have been a terrible mistake. Indeed, the view in the UK is just that: "silly Tata, that will teach them for buying our rubbish companies". However, this way of thinking says more about the British attitude towards manufacturing than it does about Tata's decision to buy Jaguar and Corus.

Indeed, friends of Ratan Tata have told me that he is perfectly happy with the deals he struck in the UK. In hindsight, he has told them, the deals were overpriced but in 10 years time they will look like bargains.

And here lies the difference between someone rooted in a rapidly growing, manufacturing-led economy and those of us living in a post-industrial economy.

The British perception of companies such as Jaguar is that they are in terminal decline and that anybody buying them must be doing so to gain a brand or flog the assets. But this is not the way the Indians think and it is certainly not how Ratan Tata thinks. In India, manufacturing is seen as essential to continued economic growth so Tata has bought these British businesses not because he expects them to contract and decline but because he expects them to get bigger.

In the UK we have become so used to the idea that our economy is driven by financial services and retail that the notion we could once again become a world leader in steel production or the car industry is almost laughable. So it is just as well for the 38,000 people employed by Corus and Jaguar that the Indians do not think in the same way – and if Tata's investment strategy is on the money, these British icons should prosper and grow in the future.

Perhaps the rest of the UK economy needs to adopt a similar philosophy. Our reliance on financial services has proven to be dangerous and all countries must realise that diversified economies are vital to weathering storms. Manufacturing needs to make a comeback in the country that gave the world the industrial revolution.

Given our history, there is a wonderful irony that it will be Indians teaching us how to do so.



- The writer is a business correspondent with The Times of London