After a couple of global acquisitions, Ramakrishnan Mukundan is now focused on building brands from commodities; the managing director of Tata Chemicals believes although the consumer business may appear small in terms of the turnover, it?s highly profitable. The R14,859 crore firm took a hit of R490 crore impairment in the March 2013 quarter, for the European soda ash operations; efforts are on to come up with solutions to pare energy costs and make the unit profitable. Mukundan believes India needs to take advantage of the shift in manufacturing out of China; a vibrant manufacturing sector, he says, will help shift labour from rural to urban India. However, he tells Shobhana Subramanian that the ease of doing business in India is an issue and that foreign investors have walked away because of the undue delays in approvals.
There?s been a lot of labour unrest, primarily in the auto space, over the last couple of years, with much disgruntlement on wages. Wages have run up sharply but has productivity kept pace in Indian manufacturing?
If wages go up, it?s good for us because money is in the hands of people, and it increases purchasing power so we should not be worried about wages rising. But companies need to be reasonable while sharing the benefits with employees. The Prime Minister hit the nail on the head when he once raised the issue of inclusive growth managerial salaries. There are companies where the differential between white collar and blue collar salaries is high, where a serious proportion of increases have happened with regard to white collar salaries and we need to do some analysis on how to deal with this.
In our company we have had labour settlements based on three or four benchmarks. The first is the cost of living. This needs to be respected because you don?t want employees to suffer in their standard of living. The second is working with the workforce to get greater capability and flexibility; if you get that, the company can afford to compensate workers better. The third element is to benchmark with industries around to see if the wages are in line with the competition. There will be pressure points, because it?s a negotiated settlement and you will have rough periods but in general there are mechanisms that companies use and settlements do happen.
Is productivity going up?
A fundamental issue we need to look at is whether we are skilling our people well and whether these skills are getting upgraded every year so that productivity increases. Most companies are spending time and energy on upgrading skills and as a result employees who become competent are looking beyond their company. There is greater mobility of labour today; as their skills improve, workers become more mobile. We are now seeing supervisors and workmen leaving for opportunities in new industries. That shift is happening. For example, some people from our company have left for the Middle East where the slowdown is not as severe and where wages are much higher. Again, if a company is setting up a unit near his home town, a worker would move because he would be closer home.
How would you assess the attitude of workers today?
I believe we are not in the zone in which we were in the 1970s and 1980s in terms of labour movement. Attitudes had softened very much but today there is the issues of ?am I getting a fair share?? I think people need to communicate more on how this fair share is being calculated.
Any thoughts on NREGA?
The government data also suggests some leakage so they need to address that. But there are positive sides to it, in the sense, that we?re looking at areas which we never looked at in the past. We?re looking at low-cost automation more seriously, we?re looking at productivity even as farm labour moves out of the farm. The bigger challenge is to shift the labour from farms to factories, from rural to urban and that shift is what need to work on. NREGA is just a part of the story where you say you?re giving them gainful employment for part of the year so you have something in your pocket. The next stage should be, instead of simply leaving them to construction jobs, to figure out, whether you can build a vibrant manufacturing sector, which benefits partly from the shift of manufacture from China to other places, that can absorb people. Also, can we skill our people to make products at a competitive price?
How to revive manufacturing?
We need to speed up decision making. If you ask where the projects are stuck, you would see that for most companies it takes undue time to get approvals. Indian companies implement in a world-class manner, we fail before we get the approvals in place. Also, despite assertions that we are a high cost economy, there are areas in which we can be highly competitive. The issue is how do we scale the competitive position that India has? To manufacture at a certain scale you need people to think in terms of large investments and for a large investor to come in, there has to be surety of policy. For example, if Nokia has set up its handset manufacturing unit in India and, if you want Samsung to come in you should make a success of the first venture. Many foreign investors have come, looked at land and signed and left because they can?t keep waiting for six and nine months. If Vietnam puts an offer on the table which they find they can execute. The Chinese government tells us that approximately 70-80% of manufacturing is done by non-Chinese companies, who have set up assembly shops. The ease of doing business is what is an an issue here.
Is the cost of money an issue?
Large companies can cope with the high cost of money but not smaller firms. And the bulk of exports?60-70%?is happening in medium and small industries and for them credit is a crying need and the cost of credit is high. Even my partners in the value chain are having a tough time. It is important to assess the situation in this context.
Tata Chemicals? overseas operations have been in bit of a spot ?
We are working on a process to make the operations in Europe more efficient. We have to address the energy costs and and we are looking at partly a change of source, a sustainable energy project that has been approved. In general, we are orienting the product line, out of commodity and more towards value-added and cash flow products like bicarbonate. When our plan is executed, the soda ash business in Europe, should become profitable; that should happen in around 18 months. In Magadi, the work on the conversion from liquid fuel oil to coal is on and, once the conversion happens, there are no structural issues to be addressed. When we bought the unit, crude oil was at $45 a barrel, now it?s at $100, and that shifts the equation to a different level. The US operations are doing well since energy costs have fallen and the India business too is seeing demand. In India, we have a natural protection for products, every time the rupee devalues we get a higher level of protection from imports since there is import parity pricing.
How is the consumer business shaping up?
We?re building the consumer space, and right now we?re adding to the pulses range, hoping to grow revenues at 90-100% and to take it to beyond R1,000 crore. We?re also looking at spices, we?ve launched pepper and coriander and chillies will follow. The water purifier business too is running at full capacity for the first time. The idea is to create brands out of commodities, whether in salt or fertiliser; the consumer business this year will close at ahead of R1,200-1,300 crore, at one point of time it was just R200 crore. More important, as a share of profits, it will be substantial, so that?s fine. In the speciality space, we have bicarbonate, the second is pesticides in Rallis and we?re looking to get neutraceuticals as the third business. We?ll also be adding speciality chemicals like foods and materials.
How are you planning to build on the retail platform that you?ve created?
We have a retail chain of 700 stores and we also have a retail footprint?Tata Kisan Sansar and Tata Kisan Kutumb?a family of farmers, today we have a connect to a million farmers and our aim is to take it to ten million in the next stage. We will do this through programmes that give them inputs and skills. We?re working with farmers in Tamil Nadu, Karnataka and Andhra on pulses, we actually buy more than what we need and sell the balance in the mandi. It?s a business for us, it is a programme which will allow us to build a branded business with a secure source of loyal suppliers. We?re not recommending they use our seeds or crop nutrition, if they do it?s fine.