'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

by Manjeet Kripalani

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.