July 02, 2001 | The Week

Main problem is scale

The news from the market was not the most encouraging. But his faith in his people and product burned bright. What began as a 15-minute meeting went on for 45 minutes as Ratan Tata talked about the passenger car business and his vision of the company becoming a global player. Excerpts from the interview:

Do you think the development of Indica has received due recognition?
I'm glad you asked this question because, in some ways, I have a remorse that we have not received due recognition. And I would not feel that the credit goes to the Tata group. The credit really goes to the hundreds of people within the company, from the young engineers who conceived the project to the many workers who worked towards taking something that has never been tried, we have never mass produced a car before.

I was in Pune on the day the first Indica engine designed in India was started. I am not an emotional person, but that day I had a major problem saying a few words without getting a lump in my throat. There was such commitment and as that engine started and ran there was such exuberance that they had succeeded in making something happen.

For me the greatest satisfaction and excitement is that when we started this project, many people said it could not be done. India can't produce, should not produce its own car, it would not stand up to international competition. This project is attributed to me emotionally. Not so. It is just that I had a strong conviction that our engineers, who could put a rocket into space, could produce our own car. And when we took up the challenge, we went out and got expertise wherever it was necessary. We decided we will produce a world class car. So we wanted style, we went to Italy. We had very little petrol engine experience, we went to France. For electronics we went to Japan. We went wherever we had to go, but it was our product, it was not licensed, we did not pay royalty to anybody. Everything we had in it was ours. So to me it was a great feeling of national achievement.

Most people don't understand the complexities that go into developing a car from scratch. So for those involved in it, there has been a tremendous amount of satisfaction that we have been able to do it. And an even greater satisfaction today that the car is being well-received in some European countries.

What one is looking for in the future is Indica being established as an Indian car, conceived, developed, engineered and manufactured in India. A car that is accepted by the Indian public and that will hopefully invoke the kind of national pride we did at the time of the launch, which in some ways we have not been fully able to exploit.

Do you still feel Indica exemplifies what India can achieve if people are given the right environment?
I think India is capable of doing anything it wishes to do if you do not constrain the people, if you give them the resources, if you give them access to the expertise.

There is an important need not to do what we have done sometimes in the past, and that is to get carried away by saying everything has to be self-contained, all expertise has to be within yourself. Sometimes I think the mistake the government makes in undertaking projects is to try to develop all the expertise related to the project. Often a project does not have scale in all areas to make it viable. If you don't put that kind of constraint, I have no doubt that India can stand up in the world and develop and engineer products that we thought could not be done. And do it globally competitively.

Will the passenger car division at some time have to start thinking globally and become a global player since all your competitors are global players?
I have a somewhat different view. Yes, it has to be a global player. Today, most of global manufacturers will be able to import cars to support the single product they make in India. What does a stand-alone Indian company, which has one or two cars, do in a market that does not have the protection that India has withdrawn? And I have no opposition to that as I have been one the proponents of an open market. So the only way now we can become a global player is to have an alliance with a global player. Hopefully that alliance will bring in our low-cost engineering and low-cost development capability to the table and be able to engineer new products at very competitive prices. And we in turn will get the products of that company to bring a wider range of products while keeping our identity.

The main problem here is scale. The industry may grow to a million cars a year. And it will be distributed between six or seven global players. All of them could suffer from a lack of scale in India but will manage with larger scale from outside India, which Telco will not have a chance to do.

With the kind of knowledge base you have developed in-house, are you now better placed to overcome the disadvantages you faced initially against the competition?
In many ways, yes. And in many ways, we still have a lot to learn. But one thing we will never be able to have, for example, a range of passenger cars say for four or five products, each having a facelift every year, to bring in three, four engine options for the customer, to have a range of options that global players can provide. This I feel is where we as a stand-alone Indian company will have a problem.

The Indian auto industry is in a funny situation. It will have all the players here but it is not very conducive to a domestic stand-alone company. But we do have a tremendous edge on the engineering and development sides. Not so much in terms of knowledge but to be able to do that process at a fraction of the cost it takes abroad. What we do depends on what our competitors in India do. If we can do it better than them, faster than them, we will have an edge.

In terms of the overall strategy of the group, where do you see the passenger car division in the coming years?
We went into passenger cars not because of emotion but because the truck market would sooner or later be saturated. We are in the high sixties, low seventies in market share in this. How much more growth could we visualise over time? If Telco had to grow, it needed to go where there was a large consumer demand. So we took the passenger car sector as an area that the group would address. So it remains an important part.

When you started Indica, you had said you started with a clean sheet of paper. If you had the freedom to choose, what would you start next with a clean sheet of paper?
If the freedom to choose is without any market constraints, I would say a mid-size car or a larger car, which is where I would we see ourselves wanting to be. You talked of leveraging our knowledge, so taking it to a higher level of sophistication is what I would like to see next. Nevertheless, the market in that segment is very small. But taking into account market considerations, a low-cost car would be the challenge. But the kind of buyer that excites the manufacturer is the glamour buyer, who you hope will lead others to follow suit and create a trend.

A necessity or a luxury? Do you think the attitude on this question has changed among policy-makers?
At the government policy level, unfortunately, I do not see a change. Passenger cars should not be seen as a luxury item any more than air-conditioners, which were considered a luxury item in the past. I think cars up to a certain level ought to be considered as personal transport, which is what many countries have done. They have differential levels of taxes based on engine size. So you make the cheap cars cheaper and the expensive cars more expensive. That we haven't done in India and maybe there is a call for doing something of that kind, which most of the foreign car manufacturers are fighting because they are not in the low-end segment.

Do you see Tata Engineering shifting focus from trucks to passenger cars five years from now? Where do you expect the greatest growth?
Today, the company as a whole has four distinct segments, the heavy and light commercial vehicles, the multi-utility vehicles and pure passenger cars. Five years from now we will still be in all these segments. Or we split into a passenger car company and a commercial vehicle company. I don't see us exiting from any one of these segments.

Where growth will be more is difficult to answer. Tomorrow if the government reduces excise duty by 50 per cent you will see tremendous growth in passenger cars. If the level of economic activity in the country picks up, the commercial vehicles sector will pick up. In a country like ours, both the segments should theoretically grow at very healthy rates. But it will require some judicious changes in government policy.

If we can traverse the country in two days and do it at high speeds the entire complexion of the country will change.