'We Are Fast Losing the Race With China'

J.J. Irani of Tata Sons warns that regulations and political indecision are hurting India's competitiveness, especially in the energy sector

J.J. Irani, KBE, could easily be mistaken for Santa Claus. Pink-cheeked, white-haired, and cherubic, the 69-year-old former chairman of Tata Steel and current director at Tata Sons, the parent company of the giant Indian conglomerate Tata Group, is usually even-tempered and jolly.

But these days India's steel guru (he was conferred honorary knighthood by Queen Elizabeth II in 1997 for his commitment to Indo-British partnership) is despondent. The Tata Group is starting to get global attention thanks to the $29 billion it has lavished on overseas acquisitions in areas ranging from steel to hotels; its daring decision to produce a $2,500 car; and its pioneering software business. However some of the group's future investments in India have been languishing due to political indecisiveness. Tata has several steel and coal projects planned in the eastern states of Jharkhand and Orissa, which are resource-rich but poorly governed and therefore mired in corruption and poverty.

When asked by BusinessWeek Bombay Bureau Chief Manjeet Kripalani about India's imminent manufacturing takeoff, Irani scowls and lets rip. "The pieces are not falling into place," he says.

What do you think about India's manufacturing takeoff?

We are ready for the pieces that are falling into place, but there is no decision-making from the government. There are too many conflicting signals. We have moved ahead in services, because it has no regulators. Everywhere else, there are too many roadblocks.

In our manufacturing potential, we are fast losing the race with China. China is more organized and faster than India. The gap is widening.

But what about the progress made in the auto sector?

I'd agree with you that the auto sector has moved ahead. But that's largely because of competition with the major players. There's the initiative [in that sector] to improve their standing in the world. The auto industry is looked upon as approaching world-class levels. There's nothing wrong with the Indian entrepreneur. They would do better in a freer regime outside India. We have too many conflicting rules and regulations.

What is the main problem?

The license and permit Raj is largely disbanded, but the new horror is the Environment Ministry, which is needed for clearances of large projects. It is possible to have a good environment and good mining activities. India is committed to energy from the coal sector. We have no oil and very little gas; coal will be the source of 80% of our power needs, but it is largely buried in forests which need Environment Ministry clearances.

In the next 10 years, our coal production has to increase fourfold from 500 million tons to 2 billion tons per year. We have the coal but to get the Environment Ministry to agree to what the Coal Ministry is suggestin, is difficult. The private sector can be very responsible. Tata has mined the coal and created a forest where there was none.

So it comes back to the problem of politics?

We are overpoliticized and all our problems ultimately have a political solution.

And is it right? Economic problems need economic solutions. Religious problems need religious solutions. Social problems need social solutions. But everything here is an industrial solution, a political solution.

What about industrial production and manufacturing growth? That's at 12.5%.

Manufacturing statistics have showed that, in the last two months, industry is growing because of the entrepreneurship of Indians. I don't think infrastructure bottlenecks have hit growth yet. Growth has slowed because of indecision.

For instance?

Take steel. We need more than we can make. Yet we are exporting steel to China and Korea. And it's coming back to India. We are not making our own steel. Posco and Arcelor (MT) are sitting for the last three years on their investments, which have not been sanctioned yet. [Mining and minerals company] Vedanta's one plant does not have the clearances to make their expansion happen.

Indian industry is ready to invest its own money; it only needs sanctions from government. Jharkhand and Orissa are sitting on a lot of iron ore, but they are not being sanctioned, therefore there is a lot of illegal mining, scratching the surface, slaughtering the iron ore, and shipping it out—mostly to China. It's illegal mining, not illegal shipping.

In the area, the sky is red—the trees are red, red is the dust that is generated as a result of excessive and improper mining.

What is the solution?

All the government has to do is to, first, sanction the ore to the legal, private sector, like Arcelor, Posco, and Tata Steel. We will make steel here, it's needed here. And second, the government has to stop the pollution.

So where does the Tata Group stand in all this?

The Tata Group will always be at the forefront of any manufacturing activity it is involved in. Steel, autos, chemicals, power, consumer goods like watches—we will be the best in the world. The best and the most efficient. We have taken a decision to go beyond India—not just because we are restricted in India. One has to be international if you want to be a global player. Added impetus has been that we are not allowed to expand in India. In chemicals, we are expanding in Africa; in steel, you know about the Corus acquisition; autos are expanding in India but getting out to Spain, Korea, and we have assembly units in South Africa and joint ventures in Brazil and other countries of Latin America.

The future of the group lies…where?

Tatas are working on future industries—more R&D, and less manufacturing. [We] don't need the interface with government in those areas. The problems will come there too when you need government permission for everything from land to titanium. We are rich in titanium, which is stronger and lighter than steel—but there is no policy on its development.

Foreigners are pouring money into Indian manufacturing…

Foreigners are coming here for low-cost manufacturing. We are making steel in India because it's the lowest-cost in the world. Foreigners come for manufacturing and for research and development to India. Tamil Nadu is a favorite hot spot for manufacturing and for IT.

Before it's here, it's on the Bloomberg Terminal.