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[Music]
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The 2009 Wharton India Economic Forum
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titled India: The Road Ahead took place
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in Philadelphia and brought together
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CEOs of leading Indian companies,
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investors, heads of nonprofit
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organizations, sports celebrities, and
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Bollywood stars to discuss where India
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is headed. In an age of economic
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uncertainty, Indian Knowledge at Wharton
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brings you one-on-one conversations with
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these leaders.
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Cara, thank you so much for joining us
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today.
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Thank you. So much has been written
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about the world financial crisis and the
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uh recession, the greatest crisis since
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the great depression. Uh how do you
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think it has affected uh the Indian
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economy and the people of India?
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Um I don't think it's really affected uh
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the Indian economy and and the and the
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billion 1.2 billion people of India. Um
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it's what's really happened is that uh
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suddenly um demand has fallen in India
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partly because of domestic reasons and
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partly because exports are down because
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there's no foreign demand or reduction
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in foreign demand and that has its sort
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of multiplier effect in the whole Indian
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economy. So just like the rest of the
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world that seems to have fallen off a
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cliff in the last 6 to 8 months. Uh it
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was certainly falling but in the 6 to 8
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months I think the drop has been
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incredibly um steep. I've never seen
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anything like this in my uh pretty long
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career now. Um and so it is worrying
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because we don't know where we are all
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going and that means not only the
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western developed world or it also means
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India and other developing countries
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because we've never had a situation of
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this this magnitude before but India
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being self-sufficient in so many things
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it's really a self-contained economy we
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depend on world trade for just about I
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think uh I may not have my figures quite
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accurately but about 20 to 23% um of the
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Indian GDP is accounted for by foreign
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trade. So 75% of the country or of our
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business
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business oriented GDP, agriculture and
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so on is insulated and is not really
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affected and our banks are pretty
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solvent. Uh uh they've not had the uh uh
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NPA or non-perform performing assets
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which western banks have had. We've had
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our own problems with non-performing
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assets, but they've been minor. A bit in
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property, a bit in car loans, personal
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finance, things of that nature, but
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nothing of the magnitude where you you
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have banks that need to be nationalized
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or or saved or or rescued. Um, so I
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think India has been pretty well
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insulated and we hope that it can
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continue to be. So, and I think the
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government of India has followed a
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sensible policy and not panicking.
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They've also
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loosened the taps on money supply to a
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considerable extent. So industry has
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enough finance available. A lot of us
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complain about it because it's uh uh
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it's nice to complain and to egg the
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government on uh to loos to open up the
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taps further which is going to be
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necessary. And I think just like the
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United States um uh you you've got to
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take a long-term view on this. Yes,
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you're uh letting money supply expand
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dramatically uh through a whole series
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of measures, but u and that it may
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create inflation in the long run. Yes,
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that's probably a given, but we see no
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signs of that yet. So, let's worry about
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perhaps a lesser problem then than worry
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about it right now. And I think the
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problem now is to get the world economy
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going, to get our own domestic economies
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going, but in a sensible balanced way.
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None of the excesses that we've seen in
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in the past decade or so both uh
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overseas and even in India and for
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example I think the excesses in the
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property market
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for example and even in the stock market
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you know valuations had reached
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ridiculous levels um and uh uh and and
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and a reaction was bound to happen.
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What about the insurance market has that
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been affected at all? The insurance
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market has only been affected I think uh
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in terms of people going a bit slow on
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using their savings u to put into other
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types of savings. Insurance is also a
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type of saving. If you if you're just
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taking plain u simple life cover that's
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not a saving. That's just pure
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insurance. But there are schemes which
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are attached to perhaps investment
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schemes, debt schemes, equity schemes,
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mix schemes. Um and people are slowing
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down on on that for sure. Right. I I
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know that the Tata group has been
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involved with AIG and I and I wonder if
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uh AIG's problems with uh the subprime
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crisis in the US has had any effect. In
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fact, it be very helpful to understand
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the a Tata AIG venture and and to see
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whether it has been an effect.
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Okay. Uh I won't obviously uh speak
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about AIG per se and the problems that
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it faces in the United States. It would
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be wrong for me to comment on that. uh
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but certainly in terms of our joint
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venture in India um it's a joint venture
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two joint ventures one on the life side
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and one on the general side general
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being non-life you know fire property
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casualty um and both uh companies have
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an equity holding uh from AIG of 24% and
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Tata Suns of uh uh 20 of 74%
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sorry did I say 26% yeah 26% and uh
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Tatas of 74% so We have a majority
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holding and we and the the capital is uh
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the companies are properly capitalized.
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They are properly regulated by the
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insurance um regulator. We meet uh um
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solveny norms um far beyond what the
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regulator requires. The normal
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regulation says that you must have 150%
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uh solveny ratio. We are in the life
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company probably nearer 300%
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and the or sorry perhaps 250% uh and in
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the general company 200%. So we are well
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capitalized. There's nothing to worry.
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In fact uh uh we've been very very uh uh
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happy at the response that we've had
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from our existing policy holders uh
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because as far as they are concerned
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they see the Tata name. The EIG name may
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be known significantly in
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in the western world or in other
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countries. Uh it's not it's relatively
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unknown. EIG's made a good uh start at
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building their brand in India. Uh
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unfortunately these events have happened
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over the last 69 months uh which may um
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leave them bit bruised and damaged. Uh
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but it but has been a great
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international name. So we've had no
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problems with our AIG partnership as
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such. They brought a lot of domain
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knowledge to the business. We brought in
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local knowledge. We brought in uh local
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local uh u marketing u
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in-depth marketing skills uh which I
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believe make for a successful
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combination. In fact, maybe a lot of
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people don't know but before uh um the
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insurance industry was nationalized uh
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Tatas had an insurance company in in its
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fold called the new India insurance
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company. It was founded by um sir I
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think it was sir doruptata um and in the
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1930 it was founded in the 1930s and at
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the time of nationalization in the 60s
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and on the bout of nationalization in
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the 70s we were the largest private
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sector insurance company
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so we have some background uh some
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legacy uh the saying we just tried to
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reclaim our legacy
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right and I know in the course of your
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career with the Tatas you've also been
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involved with Tata motors
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which which has been in the news quite a
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bit. Uh I believe the Nano is uh you
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know about to be launched relatively
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soon. Uh given the auto uh auto crisis
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in the US, I wonder how you see the
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source of the crisis here and whether
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you know the Tata's expertise in the
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auto industry might offer any lessons.
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that would be a bit presumptuous to
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offer something to the United States.
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But uh but anyway firstly in terms of
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the the nano yes it is going to be
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launched uh in 2 days uh on the 23rd of
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March uh uh in moment and by launching
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it means it's really going to be
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available uh for the general public to
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start bookings and uh hopefully
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deliveries. The original plan was of
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course that we would uh be starting off
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from a single mother plant um in Singur
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and uh we would have been uh we would
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have had nanos um in the streets of
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India or roads of India on the roads of
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India um 6 months ago. Uh but these
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delays have happened now we using other
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plants uh in in in in Tata Motors to
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produce the nano and the production
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scales won't be very large to start off
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with. uh but as soon as the uh plant in
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Gujarat and SAN becomes available uh and
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is fully geared up with equipment and
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commercial runs have happened then I
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think uh we'll see some volume sales.
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Do you think you might ever sell the
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Nano in the US?
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I would say not for the foreseeable
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future. It's difficult to say never uh
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or shouldn't one should never say never.
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Um but I think it's it's unlikely that
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the United States would be on our
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priority list. Certainly Europe would be
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on a on our priority list. Um and again
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when I say priority list I'm talking of
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say 3 years ahead 3 years from now. By
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the way I'm no longer associated with uh
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Tata Motors directly. Uh but at the
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group level whatever is public knowledge
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or semi-public knowledge I can perhaps
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share with you. But Mr. Tata himself at
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the Geneva Motor Show made a public
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statement, I believe, um that the Nano
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he hoped would be available in Europe at
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a reasonable time in the future. When he
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was pressed, he said maybe 3 years. Um
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and um and again, somebody asked, would
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it really be $1,000 uh sorry, a $2,000
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car? Um um and he said no I don't think
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so because we'd have to meet uh as it is
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it meets pretty stringent uh safety
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norms in India um and and in fact for
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Europe the norms today are not very
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different from the Indian norms but in
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the expectation that be higher norms as
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we go along three years he thought was a
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good enough period in which to get the
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nano up to European standards for sure
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and the price again he was pressed on
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and he said, "Well, if you want me to
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give you an approximate price, I'd say
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it's probably $5,000."
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Over the course of your career, what
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would you say is the biggest leadership
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challenge you've ever faced and how did
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you overcome it and what did you learn
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from it?
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Well, I think you you face problems and
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crises all the time. So I I wouldn't
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pick any particular one but I'd just say
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that uh we went through a very difficult
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time in Tala Motors um in uh
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soon after we launched the Indicar um
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when which was India's first really um
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domestic domestically designed and
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engineered and manufactured car um and
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it was not a creation of the car's
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problems. It was a creation of demand.
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demand just collapsed in the uh in in in
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in the economy. So it affected the truck
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business and Tata Motors at that time
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was really a truck company. It's now
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that it can proudly say it's also a car
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company but at that time it was very
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much a truck company and we were
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undergoing the transformation into being
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an automobile company also by creating a
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separate uh vertical in our organization
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but to change the mindset of people uh
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to go from a truck manufacturing uh
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manufacturing and quality uh mindset to
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a car thing was probably the key and u I
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bore the brunt of it because uh not that
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I was involved in manufacturing ing at
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all or quality. But because I was in
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charge of my my executive directorship
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contained one uh u one area and that was
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overseas exports or business overseas
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whether it was exports or local assembly
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plants things of that nature and the key
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problem was quality um and uh and I
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think uh Mr. started recognized that uh
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uh at that time straight away that uh we
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had to improve the quality and so we
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decided to to cut down our exports until
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we got our quality right and in certain
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markets uh because you see we had this
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great dream uh that yeah with with the
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indica it's again a bit like the Nano
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it's it was going to be a cheap uh cheap
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only in terms of price uh but value for
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money car uh the Nano today is you know
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everybody keeps calling it the cheapest
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uh car in the world but I I would rather
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call it the least expensive in the world
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and it's going to deliver real value for
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money. Uh because again to come to the
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narrow for a quick second contrary to
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everybody's views that oh it's just a
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rick shaw or uh something like that with
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paneling. No, it's really a full-blooded
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car. It's no different from we joked
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about it earlier about the folkswagen.
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Uh when I bought a folkswagen here uh
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was it you or somebody else? No. Sorry.
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Okay. Um as a student for $2,000 at that
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time. Uh so we reverting back to a
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$2,000
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uh car u but a modern car uh but a
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smaller engine of course uh but uh but
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the price of the dollar has fallen
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considerably uh so in effect it's an
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even more efficient and a much greater
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value for money car uh today and so the
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quality issue I would say u
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data motors was uh was was a major issue
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and then of course the recession hit us
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very badly so uh the the car side was
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being supported for a while in its
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infancy by the truck side of the
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business in terms of uh profitability
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and revenue. Uh and uh uh so it's a bad
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time those two years but we came out of
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it very well. the economy revived. You
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know, it's in the automobile industry,
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it cycles. And then the lesson to be
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learned really is that you don't
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overbuild capacity, just an expectation
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that it's going to be a vertically
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rising market and that you've had four
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good years. So therefore, the next four
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years are also going to be good and the
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four years after that. So all you do is
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just say it's a five to six year cycle
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and just plan for that. And in in the
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recessionary conditions then you start
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maybe putting up capacity which will
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meet the demand when the next boom
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starts. Uh but uh but but this is a
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mistake that we all make and we really
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started expanding our capacity. So we
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had a big financial crunch. Uh
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one last question. I I know that uh one
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of the things that concerns you a lot is
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the problems that India faces. uh with
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of all the problems that the country has
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uh which are are you uh which do you
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regard as the as as the uh ones that
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affect you most personally and and what
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do you think can be done about them?
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I certainly think uh I mean it's it's
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you know poverty defines a whole host of
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things. So poverty whether it's poverty
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of uh u of of one's lifestyle or or or
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the basics of life poverty of education
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posity of uh you know basic electricity
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availability of electricity to live uh
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comfortably or use any any equipment the
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the whole manufacturing side of our
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industry so it's all interlin um I I
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would say that u today if one can
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alleviate
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basic human poverty and misery in India
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through whatever means it doesn't matter
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even if the government gives out massive
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dos but if it reaches the poor and they
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have the ability then to spend it on
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useful things and it doesn't mean that
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uh suddenly the village girls start
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applying lipstick and uh things of that
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nature but it's used in in a in a in a
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focused way um and and there's hunger in
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India it's not as if there's no hunger
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in India yes we've had a wonderful food
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revolution and a milk revolution and uh
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all these things we are supposed to be
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self-sufficient um
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in food grains but real the reality is
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that it doesn't go down to the masses
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and that 2/3 that's in the villages or
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in
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in fact in the slum dog millionaire film
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slums of Bombay Daravi and so on it
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doesn't reach them but it reaches them
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because they are trying striving to get
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out of it they are working harder
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they've got the willpower they've got
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the
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And I think just like those two kids,
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they'll do they'll win it.
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Thank you so much for joining us today.
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Appreciate it.
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Thank you.
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[Music]
