Tata: the Indian industrial giant with a core of steel

Tata Steel was set up in the teeth of racist scorn and the incredulity of many servants of the Raj

Both groups are headed by Indians and both are hungry to take over non-Indian steel companies. But there the similarities between Tata Steel, which yesterday was said to be contemplating buying the Anglo-Dutch steel firm Corus, and Mittal, in the process of merging with Luxembourg-based Arcelor, begin and end.

Mittal may be the world's largest steel group, but it is also a parvenue. Tata, by contrast, has been the most important industrial concern in India for well over a century. The huge conglomerate, consisting of some 100 largely independent companies with a group revenue in 2005 of $17.8bn (£9.5bn), is by far the biggest industrial group in India. Its history is the history of industry in the subcontinent.

The family of Bombay Parsis headed by Jamsetji Nusserwanji Tata first became wealthy through selling opium (and cotton) to the Chinese. The opium was grown in India and exported, for many decades quite legally, to China by Tata and other Parsi and Baghdadi Jewish merchant families. That awkward blemish in the company's early history is studiously ignored in the firm's official literature.

For the company's historians, the Tata story begins with the determination of the patriarch to challenge Britain's monopoly of industry on the subcontinent. His first effort in 1877 was India's first modern cotton mill, set up in the city of Nagpur, near a cotton-growing area and an important railway junction right in the middle of the subcontinent.

Two other of Jamsetji's many brainwaves are still flourishing. Determined to drag his countrymen into the modern age, he fought for years to establish an Indian Institute of Science to turn out Indian engineers, technicians and scientists. Years after his death the school came into existence in Bangalore, an early forerunner of the Indian Institutes of Technology (ITTs) set up by Jawaharlal Nehru, which are still India's proudest educational institutions and critical to the nation's success.

The other brilliant idea - scorned by his relatives at the time - was to build India's first luxury hotel. The notion supposedly came to him after he was refused entry to an existing Bombay hotel on account of being an Indian. The Taj Mahal Hotel, the first in the country with foreign lifts and air conditioning, is still a byword for luxury and excellence, and has spawned many others in its image around the country.

But Jamsetji's boldest dream of all, and the one which led directly to yesterday's takeover news, was to build India's first steel mill. As with his cotton mill, he went to the place where the raw material was available: to East Singhbum, in what is now the state of Jharkhand, in the east of the country, a largely tribal area, densely forested until recently, at the heart of immense, untapped reserves of iron ore.

Here Tata set up Tata Steel, in the teeth of the racist scorn and incredulity of many servants of the Raj: the British head of India's railways, for example, had so little faith in Tata's project that he said he would personally eat all the railway lines turned out by the new factories.

By assiduously learning from foreign examples and persevering for years in the face of every imaginable setback, Tata and his sons proved the doubters wrong.

But Tata was more than merely an ambitious industrialist: he harboured huge ambition for the whole of his country. That's why he made his steel plant the epicentre of the city of Jamshedpur (also known as Tatanagar, "Tatatown"). Even today Jamshedpur is in a league of its own among Indian cities, well planned, with broad, smooth roads, large parks and pleasant housing colonies, with electricity and water 24 hours a day. The fetid shanty towns just beyond the city's boundary line only serve to underline the scale of the achievement.

With all these bold schemes well under way at the time of his death, the patriarch set the direction for his company for the next century. Tata continued to grow, its steel mills providing the steel for the huge fleets of Tata trucks and buses trundling along India's desperate roads, and over the decades the many dozen different parts of the empire grew more and more independent of each other.

Tata was the monopolistic beneficiary of the post-Independence decades of the so-called "Licence Raj", its existing supremacy sealed in place by government bans on private entrepreneurship. But it was also a victim of the "Hindu rate of growth", which meant that economic growth did not quite keep up with the growth of the population: Tata became, it is charged, torpid, stagnant, complacent, inefficient, like everything else in the Indian environment.

The 15 years since the introduction by Manmohan Singh, now the Prime Minister, of the first serious economic reforms, have seen the empire galvanised and transformed. Ratan Tata, 68, has been chairman of the Tata group since 1991, the year of the first reforms, and while striving to hold on to the group's reputation as the most socially enlightened of Indian firms, he has also driven it in two directions at once: cracking down on poorly performing parts of the empire at home, while spearheading an unprecedented wave of acquisitions abroad. Among his achievements: the launch, in 1998, of the Tata Indica, the first all-Indian passenger car; the takeover of Tetley Tea in 2000; and the booming success of Tata Consultancy Services, the software unit that has been one of the brightest success stories of India's software revolution.

Of his strategy, Ratan Tata told an interviewer for America's McKinsey Quarterly, "We have two guiding arrows. One points overseas, where we want to expand markets for existing products. The other points right here, to India, where we want to explore the large mass market that is emerging. Not by following but by breaking new ground in product development and seeing how we can do something that hasn't been done before."

Perhaps the most ambitious plan on the drawing board now is that of building a "people's car" for the Indian masses that would sell for the equivalent of $2,200, some $4,800 less than the Indica; Tata believes the car has a potential market in India of one million units per year. "Today in India you often see four people on a scooter: a man driving, his little kid in front, his wife behind holding a baby," Tata said. "It's a dangerous form of transportation and it leads to accidents and hospitalisations and deaths. If we can do something on four wheels... I think we will have done something for that mass of young Indians."

Steel remains at the core of Tata's business, as the Corus manoeuvre indicates. Tata said: "We are making sure that we have secure access to raw materials, because I really believe that owners of iron ore are going to rule the industry. They will be the Opec of the steel industry."

But in the drive to consolidate its grip on steel, this year Tata got some of the worst publicity in its history. On New Year's Day, during a confrontation between villagers and police in a village called Kalinganagar in Orissa over Tata's plans to build a new steel plant, 12 villagers were shot dead. Road blockades imposed in protest by angry villagers lasted for many months.