Putting Nehru, Tata to shame

All Indians will feel a surge of pride that, by taking over the International Steel group, Lakshmi Mittal has become the world’s biggest producer of steel.

On the other hand, Indians should be dismayed that Mittal now owns a score of steel plants in all continents but none in India.

This is a crushing commentary on the inanity of Nehruvian socialism, which castrated genuine entrepreneurship while rewarding slimy crooks (and their political patrons) who could manipulate the licence-permit raj.

It is also a sobering comment on the Tata group, which could have done everything that Mittal did, but lacked his skills and entrepreneurship. TISCO (Tata Iron and Steel Co) started in 1912, close to a century ago, yet produces barely four million tones of steel.

By contrast, Mittal’s empire, which started from nothing in the 1970s, will now produce over 50 million tonnes of steel. The Tata group was the richest by far in India when Lakshmi’s father, M L Mittal, was still a scrap dealer. But the Mittals had skills and gumption, and that mattered far more.

Lakshmi Mittal took over one bankrupt company after another, in one country after another, and turned all of them around.

He typically paid very little for his acquisitions: his strength lay in spotting value among wrecks, and using managerial skills to extract gold from dross.

The Tatas displayed no such skills. They had an excellent opportunity in 2001, when the global steel industry was collapsing and 28 American companies initiated bankruptcy proceedings.

I then wrote a column (Vulture time for Tatas) urging them to follow the Mittal path. Alas, they were far too leaden-footed.

They did nothing till steel prices went through the roof in 2003 and acquisitions became very expensive. They then purchased the medium-sized Natsteel of Singapore for $283 million.

Instead of buying at rock bottom prices in bad times, like Mittal, they paid top dollar in good times. This sums up the difference between them. Back in the 1970s, the Tatas were giants in steel and the Mittals pygmies. Today, it is the other way round.

Now, TISCO is unquestionably a good company with top-flight managers and engineers. It claims, possibly with modest exaggeration, to be the second-cheapest producer of steel in the world.

But it has not fully erased a managerial culture that faced no competition save from the public sector for decades.

The licence-permit raj castrated entrepreneurship and competition so badly that Indian businessmen ceased to realise how inefficient they had become.

Rusi Mody presided over the most outrageous overstaffing at Tata Steel, and got away with it because overstaffing was even worse at SAIL.

Nehru was obtuse enough to reserve steel production for the public sector, in the zany belief that this alone would take India to the top.

Like all socialists, he thought money mattered above all else, and so championed the public sector, which could raise all the money it needed through taxation or printing money.

It would never have occurred to Nehru that an Indian could build the biggest steel empire in the world by buying bankrupt steel companies for virtually nothing.

Lakshmi Mittal did not become No.1 by taking advantage of all that India had to offer, such as cheap iron ore, subsidised finance and protection against imports.

On the contrary, he succeeded because Nehruvian socialism forced him to go abroad, where he had to compete with the best in the world. His family started with a mini-mill in Indonesia producing

65,000 tonnes of wire rods. Next came a management contract, with the option to buy a bankrupt government steel plant in Trinidad. The Mittals turned it round instantly.

How? For starters, by replacing European managers with Indians. This saved $2 million in wages, and brought in superior skills too.

Mittal’s Indian managers were overwhelmingly from the public sector. In India, they could not compete with the rest of the world despite massive protectionist tariffs.

But once Mittal freed them from the netas and the babus, from licences and permits, they rose to the occasion and beat the best in the world. Many of Mittal’s top managers – Malay Mukherjee, Narendra Chaudhary, K A P Singh – came from SAIL.

These gentlemen could not achieve much when commanded by the neta-babu raj. But they became world class when they escaped the shores, socialism and corruption of India.

Nehru, who smarted from British racism, wanted to show that Indians were as good as the whites. Yet, his strategy assumed that Indians could not compete (at least temporarily), and so needed to be protected from global competition instead of being strengthened by it.

This, alas, turned out to be a recipe for keeping Indians inferior, for strangling their entrepreneurial and managerial potential. That has been proved beyond all doubt by Lakshmi Mittal.

What do you think?