Strong fundamentals will insulate domestic industry

Written by MG Arun | Updated: Aug 16 2011, 08:37am hrs
Jamshed J Irani, who hung up his boots as director on the board of Tata Steel and Tata Sons in June, is bracing up to get back to where he spent a good part of his life and career Jamshedpur. Irani, who is credited with the transformation of Tata Steel, erstwhile Tisco, when he was its managing director for over a decade starting 1992, says he has enough engagements to keep him busy chairmanship of a Chennai-based company, directorship on the board of three companies, and a lead role in climate change initiatives at CII. The industry veteran dwells on the pressing issues of the day in his characteristic candid manner, dotted with humour and wit, in an exclusive interview with MG Arun.

Just when the world felt it had put the recession behind, theres another one looming large. How do you view the global economic scene now

I dont think there will be a recession, but there will be a slowdown. Lets take India and the world separately. India has strong fundamentals, and thats a great case for us. Only those companies with much export orientation have suffered in the first recession. But those who have domestic orientation, including Tata Steel, will have no problem. The Indian economy is still consuming all the steel, and our problem is that we are not able to make enough steel here. We should be ashamed that we have to import steel owing to the government lethargy regarding land and other amenities that are required for steel plants.

What is Indias potential in steel making How will we get there

We should be making much more than the 70 million tonne (mt) we are making. The country can easily absorb 100-150 mt. I dont know when we will be making that. The government should be concerned about providing the required facilities to put up steel plants, rather than go about setting targets. Meanwhile, the export of iron ore, in my opinion, should be permanently stopped, certainly capped.

The Supreme Court has recently allowed mining in Bellary by NMDC, while exports have been banned

My view has been that in Karnataka, whatever is required locally should be freed immediately, while exports should be frozen permanently. Compared to Australia, Brazil or China, we have very little iron ore. That should be left for the future. Lets learn from China. China has a tremendous amount of coal but a few years back, they realised that their resources are limited. They then froze exports of coking coal overnight.

The government has unveiled the draft land acquisition bill. Maybe the provision there would address some of the industrys concern on land issues

The previous land acquisition act was archaic. We need a new land acquisition act and we have said that everyone ought to be treated fairly. The problem that arose in a place like Singur was that the deal for land was between the land owners and the government, while the land was actually occupied by the tillers and farmers. So the deal had no impact on the tiller.

What can be done to spur steel demand

Here too, we need to learn from China. There they put up the infrastructure first, and then expect the industry to follow. Here, we do it the other way round first set up the industry, and then expect the infrastructure to grow. I dont think we are able to meet even our targets for making roads. We havent moved much ahead from the British days in terms of the railways, and we are still short of power. There is no limit on how much you can make, since the car industry is booming, white goods picking up, and the Indian middle class offers a tremendous market. Industries abroad are saturated and are suffering. Here, the production does not meet with demand.

How do you see the days ahead for Indian steelmakers in a volatile global environment

India has around 65 mt of steel production. This would be taken up by the housing industry alone. There is a slowdown in the automobile industry, but the requirement will still be there. But we have never reached the 2005 levels in production and now this slowdown has come again. When demand comes down, prices will come down since there is competition.

Do you think prices will be impacted

In India, there would be a slow creeping up of prices. Due to the events in Karnataka, there would be a slight blip, but it will rectify. But internationally, prices will be under pressure, and could touch even lower levels than what we have now. Eastern Europe is the star performer for Europe because they make steel cheaply.

Tata Steel Europe has to import all its iron ore. What are the pressures there

Tata Steel Europe has no iron ore or coal just now, but the main emphasis now is to get them - both coal and iron ore. Next year, a small beginning will be made. Iron ore will be procured from Labrador, Canada, and coal from Mozambique. It is totally uneconomical for us to export iron ore from India. We had also given a pledge to the government, many years ago, that we will not export to even our own plants in Europe.

You have been associated with the industry since 1968. How has the Indian steel industry transformed over the years

The change has been tremendous. The newer plants in our industry are as efficient as any modern plants in the world, and Tata Steel is one of the lowest cost producers. In 1990, both SAIL and Tata Steel had old plants since we could not expand. After liberalisation, others like Essar and JSW have come up and are as efficient as Tata Steel.

The Companies Bill, drafted by a panel led by you, is still awaiting Cabinet approval. Are you happy with the final provisions

Every time the Bill is ready to be sent to Cabinet for approval, it is delayed. The Satyam saga came after we drafted the Bill. We drafted the Bll making it as modern as possible, and I must say that it is the courage of the government that 90% of the recommendations are still included in the present bill. When Satyam happened, there was a pull back, which was justifiable. The government said, lets not liberalise too fast in the context of what happened. We explained that it was a one off case, and the new Bill that came was almost what we had recommended. Then a new minister came, and again some changes were made. The latest news is more encouraging. Before he demitted office, Murli Deora had removed some of the more draconian aspects that were going to be included.

Theres much debate on the CSR aspects

We cannot force a person with regard to corporate governance. The problem with laws is that people tend to oppose them. Take the case of the limit to CSR spend. For instance, the Tatas set aside much more than the stipulated 2% for CSR initiatives. Also, the 2% would be part of what If it is the average of last three years profit, then if the profits are declining, does it mean your CSR spend should decline It cannot be so. It is the rate of expenditure and the rate of growth of that expenditure that is important, than some artificial setting of limits. Corporates should be encouraged towards social commitment. Even our smallest companies makes social commitments, and the community supports them in turn. You need to win over the community before you start making profits. People factor in every cost power land and so on, but the community comes in much later. Jamshedji Tata wanted to find out how the life of the santals would be affected by putting up a steel plant, and he sent social scientists there. Tatas believe in the principle, What comes from the people goes back to the people.

Another question is regarding the number of independent directors

So many times I have been asked by ministers, What should be the percentage of independent directors I said it does not depend on the number. What we want are good people who will take care of the interest of minority shareholders. Now, it seems it is pegged at one-third of directors.