42nd National Management Convention – Mr. T V Narendran, Managing Director, Tata Steel India

Mr. T V Narendran, Managing Director, Tata Steel India,South East Asia

Mr. T V Narendran, Managing Director, Tata Steel India, South East Asia speaking at AIMA’s 42nd National Management Convention on 30th Septemeber 2015

The theme of this conference is about making it happen and I think that’s very important. And when I looked at this theme, I was remembering something I heard a few months back from somebody, I don’t remember the name of the speaker but, he said something which stuck in mind and he said – ‘Leadership is about dreams and details’ and I think that’s a very important and crisp way of defining what leadership is about. Because he said ‘you should have dreams otherwise you can’t inspire the people who follow you to follow you and you should have the ability to get into the details because otherwise you can’t make it happen. And if you only have the details and not the dreams then again you are probably not a leader’. So I think it’s important to have this balance between dreams and the details and making it happen is about bridging that balance. So when you look at the Make in India initiative and I think as someone in the manufacturing industry it’s something really exciting for us because after a long time we are all talking of ‘making India’ and we have a government who is making a big splash about it and I think we are really delighted about that because one thing is clear – there is no economy in the world which has made this transition from underdeveloped to developed without having a strong manufacturing sector and even today most developed countries have a bigger share of their manufacturing  in their pie than India has.

So it is a journey we necessarily need to take as a country and if you believe that we can get to that status without having a strong manufacturing sector, we are fooling ourselves because it’s not just about jobs; jobs are a very important part of the story but it’s also about the kind of money which is typically spent by manufacturing and R&D. It’s the other infrastructure issues which get tackle when you have manufacturing coming in and most importantly it’s about jobs.

So when you look at something like the Make in India program I think we cannot but understate the importance or over state the importance, depending on how you look at it, of the fact that there are a million people joining the workforce every month and so there is a need for all sectors to step up because today agriculture is a shrinking part of the economy but still accounts for maybe 60% of the employment. So there is a need for us as we move towards the journey from being an agrarian kind of economy to a developed manufacturing and services led economy to be able to create those jobs that’s why Make in India is important and manufacturing is very important.

But the key question is how to make it happen. It is clearly a national imperative, we all agree, and it’s something that many of us in India as industries as companies have been doing for some time, probably with some more impetus now but we have been doing it. And when I make some of the comments that I make subsequently I speak in general on behalf of the industry rather than on the behalf of Tata Steel because Tata Steel has already spent over some 40,000 crore over the last 5 years and building capacities for Jharkhand and Orissa and we have a capital expenditure plan which is typically around 5000 crore a year. So we are in some sense putting in the money where the mouth is and making in India. But the comment I make is more relevant to the people you want to attract to invest in Make in India. So for those of us who are already there, will continue to do so. So to me while it is national imperative the key point is how do we make it a business imperative? How do you make it easy for the businesses to justify it? How do you make it easy for the businesses that are not in India to justify it to their boards that they have to make in India? And I think some of the points that are raised subsequently are going to address the nuances which need to be addressed if we are able to make a business case out of it.

So to me I will start with the first point. The first point I want to make is while there has been lot of emphasis on ease of doing business and I would certainly complement Mr. Amitabh Kant, Mr. Chaturvedi and the entire team who has been doing such a fantastic job of making it easier to do business. We also now have a state wise ranking, name and shame kind of approach which encourages the states to move into the mold of competitive federalism which is great. So there has been a lot done in ease of doing business but to make a business case out of Make in India, there is also a cost of doing business which needs to be kept in mind. Because the ease of doing business is one element of it, the cost of doing business is the second element of it and a very important element of it.

There are costs which are within the control of the investors of the manufacturing industry, costs which are within our gates, which is in our control; it is for us to invest in efficiency and productivity. But there are costs which are outside our gates, where government has more control, where policies drive those costs, where infrastructure deficits drive those costs and where the government has a big role to play. And the point honorable minister made earlier in the day about the cost of time, we don’t even sometimes measure it. We just say something is delayed by 3 months or 6 months but if you really start measuring the cost particularly in the capital intensive industries and in a country where cost of capital is high despite whatever has happened yesterday, we have a problem to solve because there is a cost of delay, there’s cost of time which adds to the cost of doing business and unless we can tackle this cost of doing business, we are going to struggle to make a business case out of it.

The next point I want to make is about opening up of trade versus opening up for investments. You know sometimes we confuse both these issues. The biggest strength we have as India is that this is one the most attractive markets in the world. We are the largest middle class or going to have the largest middle class in the world. We are certainly one of the youngest countries in the world and will continue to be the youngest large country for at least next 30 years. We certainly have the growth rate which is obviously highest for all the large economies. So it is certainly a very attractive market but how do we translate that attractive market into investments in India and here I think the discussion and the nuance about investing in India as opposed to opening of Indian Market is very important one.

So as industry I’m certainly for opening up for investments. Let anybody from anywhere in the world who’s interested come and sell in India and capitalize on the opportunities provided by the market in India. Let them come and invest in India, build industries in India, create jobs in India. That’s why we have this Make in India campaign, so let them do that. But if we open up the markets faster than we make it easier to do business in India and quicker than we can reduce the cost of doing business in India. You will always find investors thinking that I can always access the Indian market without really making in India and I think unless we solve this problem there will be this issue because if it’s easier to do business in some other countries and it’s cheaper to make the product in some other country and if you have the access of let’s say zero import duty then you will have this problem.

If you look at the Indian auto Industry and all of us are proud of the Indian auto industry and what it has done over the last twenty thirty years, can you imagine an Indian auto industry if there was no import duties at all, right from the beginning but over a period of time we ensured that the best in the world in the automobile sector came and invested in India, faced all the challenges of doing business in India and still stay in India because the market was attractive enough. So that to me the speed at which you open up the country for investments should be faster and the speed at which you to make it easy to do business in India should be faster than the speed at which we open up the market for imported goods from anywhere else and I think that’s a point which we can debate but that’s a point that people like us who are in the capital-
intensive industries and have invested in India are concerned about.

The next point I want to make, which was made earlier, is about creating the ecosystem for it.Firstly we don’t need to make everything everywhere so we have to decide what do we want to make, where do we want to make it. Not all states are competitive for all the products, not all states are good for manufacturing so we have to decide which are the states good for manufacturing why are they good for manufacturing, what are the factors cause which allows that. And very often when we look at a country as a geographical and political entity, we forget that the fact that if you start measuring distance in dollars and in kilometers than you will have very different factors cost structures so these are the things we need to think about and decide which state is good for what manufacturing and why, then have a plan that allows the state to promote and look for investments. Again if I go to auto industry example there are clusters, auto industry operates in clusters because you need the ecosystem of component suppliers and everyone else. So you don’t want every state trying to build auto cluster. There are few which are already there, there may be some more needed to be added but as a country if we want to make sure that we specialize, maybe there are some states should focus on defense some on metals and mining like we are in and some in auto and things like that, some in textile and what have you.

So there is a need for us to have a focused approach in deciding what is to be produced where rather than everyone chasing everything and to support that there has to be this building up of skills and I think that was again referred to in the morning. You can’t create jobs for 1 million people if they are unskilled. There has to be process of skilling which government has started but there also has to be a process whereby the industry recognizes the certification that these people get from these skilling institutes because if you ask someone to spend money spend time go through a skilling institute but you are not going to pay him or her anything more than what would you pay to unskilled person then there is no motivation, there is no incentive to go through the skills, so this is a part which needs to be addressed.

And finally, I think there is role for small SMEs, which are largely underutilized, I meannot exploited the potential. We have always looked at SMEs as someone who need to give subsidies to. The world of manufacturing, the world over lives on SMEs. The best manufacturing companies, countries in the world have a very strong SME sector. No there is no country in the world which has a strong manufacturing economy where SMEs don’t account for at least 40 to 50 percent of the manufacturing jobs, value added and maybe 60 to 70 percent of the jobs. And SMEs is not about being patronizing and trying to support them because they are small, but it is about encouraging them to be world class. Because if you look at the SMEs in Japan, Germany, Italy, they are all world-class companies. They may be small, may have more or less than 500 people on the roles but they are dominant in the businesses they are in and that to me is the heart of manufacturing in any country which is strong in manufacturing.

So we need to have a very different mindset develop the SME sector, encourage and help them become world-class in the capabilities and facilities and what I would like the big companies including Tata Steel and everyone else to do is for us to leverage the fact that we are an I.T. powerhouse. The moderator of the session is from an I.T. Company, from TCS, right. We are a country which has a very strong IT backbone I mean as we have a strong industry which is providing services all over the world. So how can manufacturing in India and now there are so many things being talked about in the digital economy in the industry parlance 4.0 but there is so much that can be done leveraging the fact we have strong I.T. sector with us, and how can Indian manufacturing, particularly the larger companies, leverage that, to leapfrog into you know what is ahead of everyone else in the manufacturing sector in the world. We don’t need to follow the usual curve of having low cost low labour costs manufacturing and then going up the ladder. Why can’t we leapfrog and move on the pole position as far as smart manufacturing is concerned. So with these I will conclude. I think there is a lot to do and lot has been done. I thank you for the opportunity for being able to talk to all of you, thank you for your time.

The above article is an excerpt from the speech delivered by Mr T V Narendran, MD, Tata Steel India at AIMA’s 42nd National Management Convention which took place in Septemeber 2015.

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