Home / Opinion / Views /  Tata Steel merger shows size is no longer a sin in a new India

It has been a 115-year journey for Tata Steel to go from being India’s first integrated steel plant to being, well, fully integrated in India. The steelmaker’s decision to integrate seven subsidiaries – all operating in the steel, metals and metal products area – is part of Tata Sons chairman N. Chandrasekaran’s ‘triple S’ plan to make the salt-to-software conglomerate, sprawled across more than 90 companies, into a leaner and ‘future-ready' organisation.

The three S’s are ‘simplify', 'synergise' and ‘scale’. And the merger plan ticks all three boxes. But behind the balance sheet logic of the mergers and amalgamations lies another tale – of an India where the Manmohan Singh-Narasimha Rao reforms of the 1990s are finally freeing up enterprise and entrepreneurship, and an India where it is no longer a crime to aim to be the biggest player on the block.

Consider the subsidiaries that are to be merged. They are all, of course, either majority or wholly owned by Tata Steel. They include Tata Steel Long Products (74.91 per cent equity holding), The Tinplate Company of India (74.96 per cent), Tata Metaliks (60.03 per cent held by Tata Steel) and The Indian Steel & Wire Products (95.01 per cent), Tata Steel Mining and S&T Mining Company are both wholly owned subsidiaries, while TRF Ltd, which is 34 per cent owned by Tata Steel, is termed as associate company. So, merging these into one entity makes sense and will add obvious synergies, while rationalising costs and overheads.

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But why did the Tatas float all these companies in the first place? Why didn’t Tata Steel simply diversify into all these areas where the subsidiaries operate, on its own? The short answer is, they couldn’t. Not at that time anyway. There were a number of reasons why different companies were started but they all converge around the tow dominant problems which plagued India’s industrialisation story – the difficulty of accessing capital, particularly in the early years, and, of course, the difficulties in getting the requisite licences and permits to operate from an all-knowing and all-powerful government, which, in the bad old days of the licence-permit Raj, decided who could set up a business, raise how much capital at what price and how much a business could produce once it got going.

Take TRF Limited. The company manufactures all kinds of equipment needed for bulk handling of raw material like coal, iron ore and limestone, by the steel and cement industries in particular. The company was promoted by the then Tata Iron & Steel Co. Ltd. (TISCO), and another Tata company, the Associated Cement Companies Ltd., (ACC). To part fund the venture and acquire technical knowhow, Hewitt-Robins, Inc., of the US and General Electric Co. of the UK, were brought in as partners. In 1962, when the company was started and the group had to leverage the financial muscle of its large group companies to get into this business – which, of course, needed a separate licence.

Or take the case of Tinplate, which was first floated in 1920 as a joint venture between TISCO and Burmah Oil, a British company, when the British army required a large number of cans for supplying canned food to its soldiers. Burmah Oil left with the Raj, but it has taken Tatas – and Tinplate – till now to take the logical next step. Tata Steel Long Products began life as Ipitata Sponge Iron in 1982. Since in those days, the government was a part of the action, it was a joint venture with the Industrial Promotion & Investment Corporation of Orissa Ltd (IPCOL).

This is a story which is often repeated in the recent history of Indian enterprise. HCL had to start as a joint venture with the UP State Industrial Development Corporation because Shiv Nadar, for instance, and friends had the knowhow to start making computers in India but not a licence to do so, which was with UPSIDC, which didn’t have the savvy. As late as 2011, when Tata Steel wanted to raise additional capital by issuing fresh shares, it had to declare: "The Company’s inability to obtain, renew or maintain the statutory and regulatory permits and approvals required to operate its business could have a material adverse effect on its business."

This is the real change that the Tata Steel mergers signify. Not the rationalisation of structures and synergies of operations, which are for analysts to ponder over. But the fact that when a business decides that it makes more sense to merge, change, amalgamate or even shut, it can just go ahead and do so, bar shareholder and regulatory approvals. A bureaucrat does not need to rubber stamp it or oversee the process. That is the true India reforms story.

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