Partners in Growth?

With general elections continuing into early June, Indian Prime Minister Narendra Modi and his ruling Bharatiya Janata Party (BJP) are poised to begin a second decade in power. In the realm of political economy, it is meant to be the decade of Atmanir Bharat or “Self-Reliant India,” Modi’s ambitious agenda of enhancing domestic manufacturing, infrastructural development, and international competitiveness—rhetorically packaged together in the idiom of Hindutva or Hindu nationalism. To realize this vision, as the Wall Street Journal reported last year, the government depends on “six giant companies,” including Reliance (led by Mukesh Ambani, one of the twenty richest billionaires in the world) and the infamous Adani group (who has seemingly recovered its fortunes in the wake of a scandal sparked by the publication of a report by short-seller Hindenburg Research). 

Of these companies, it is the venerable giant Tata that has promised to make the largest overall investment in India—$90 billion over five years—in key fields such as electric vehicles, military transport, telecommunications, and civil aviation. In a show of financial strength, Tata recently acquired the ailing flag carrier Air India, which it had originally launched in the 1930s as a private venture. Unlike Reliance, which offers a classic example of vertical integration in its core petrochemical enterprises, Tata remains horizontally diversified as a so-called “salt-to-software” conglomerate. Unlike Adani, whose enjoyment of regulatory favors and proximity to Modi personally goes back years to their joint home state of Gujarat, Tata does not quite fit the “crony capitalist” model.¹ In its long tradition of philanthropy and nation-building ethos, it also stands apart from the extravagance and aggressiveness of the new tycoons. The austere former Chairman Ratan Tata is reported to have said about Ambani’s twenty-seven-story luxury residence in Mumbai, “That’s what revolutions are made of.” 

Despite these differences, Tata now appears to be just as firmly embedded in Modi’s agenda as Ambani or Adani. The Indian state has always relied on private corporate capital to generate growth, while capitalists have always sought the holy grail of “state assistance” without “state discipline.”² But the relationship between the state and corporate capital has grown exceptionally close under Modi, encompassing favorable treatment in awarding contracts and bank loans and in selectively loosening regulations. This trend has raised alarm about the extent of concentration, corruption, and inequality in the Indian economy. With the right political connections in place, the likes of Adani are simply “too big to fail.” There have been a few dissenting voices against government policy among business leaders, such as the late Rahul Bajaj, but for the most part, Modi’s agenda of cultivating a pliant corporate class has gone off with few hitches. The rise of regional and small-scale entrepreneurial capital and the competitive “churn” that accompanied the liberalizing market reforms of the 1990s appear to be stalling or reversing. The result is, according to some observers, an unwieldy hybrid of Silicon Valley and Russian oligarchy, overseen by a “strong but ineffective state” that has not relinquished its dirigiste tendencies—reshuffling rather than withdrawing its patronage. 

A look back at Tata’s history can help explain how this state of affairs came to be. Established in 1868 as a merchant company active in the cotton and opium trades across the Indian Ocean, Tata ascended to the commanding heights of the emergent national economy through pioneering entrepreneurship in textiles, iron and steel, and hydroelectric power generation. After independence in 1947, the group moved into new sectors, facing up to a newly assertive regulatory state under India’s first Prime Minister, Jawaharlal Nehru, and his daughter Indira Gandhi. In the 1990s, as regulations were partially dismantled, Tata began operating on a truly global scale and took the lead in the information technology sector.³ Today, in the aftermath of the 2008 and 2020 global economic crises, it is at the forefront of a concerted pivot to the domestic market. 

Throughout these ups and downs, one aspect has remained constant. Tata has been able to survive for over a century and a half by maintaining a strategic distance from the state in all its avatars, from the British Raj to Nehru to Modi. This contrasts both with Tata’s rivals in India (Birla, Ambani, and Adani) and with business groups in other “emerging markets,” from Egypt to Korea to Argentina, which typically “became skillful at capturing the state with rent seeking.”⁴ One of the key factors behind its autonomy was preserving what geographer Michael Kidron once called the “toe-hold of extraterritoriality”—financial connections with other parts of the world, whether in the form of market access or investment and technology flows.⁵ Another was the clever use of legal and bureaucratic mechanisms to create spaces of quasi-sovereign power such as company towns and networks of influence through educational and research institutions—making Tata a “state within a state.”⁶ Today, it is an open question as to whether Tata and other groups who might be so inclined could carve out the necessary room to maneuver in relation to the state. 

What follows is a closer look at two historical moments of realignment in state-capital relations in India. The first, in the immediate aftermath of independence, shows how Tata was able to use extraterritoriality to enhance autonomy and confront the regulatory state. The second, in the midst of a dual economic and political crisis in the 1970s, shows how the antagonisms of the preceding period were resolved and an enduring “state-business alliance” took shape.⁷ Viewed from Tata’s perspective, these two moments reveal the vulnerability of corporate capital and the unpredictable nature of its alignment with the state. 

Independence and the politics of planning

As it transitioned from trade to manufacturing, Tata walked a fine line between dependence on the colonial state (especially on procurement for military contracts) and engagement with the rising tide of anticolonial mobilization. Its attitude to the campaigns led by the Indian National Congress in the 1920s and 1930s, which involved the mass mobilization of workers and peasants, was mostly lukewarm. Tata’s vision of swadeshi (a capacious term denoting economic self-sufficiency) entailed producing goods within India and, as far as possible, training Indian technicians and managers in complex and capital-intensive industries. Its products, from cotton cloth to pig iron and finished steel, were exported globally until the Great Depression, when Tata shifted focus to domestic markets as financial connections with China and Japan broke down. 

During the Second World War, the economic powers of the colonial state “as purchaser, regulator, or patron” rapidly increased in inverse proportion with its eroding political control.⁸ India’s passage from British colony to playing field of great power conflict, first between Britain and the United States and then between the United States and the Soviet Union, allowed Indian business groups to use extraterritoriality in defense of their interests. Preexisting political divisions class morphed into a diffuse scramble for proximity and access to the state, with foreign connections a vital asset. An industrial mission led by the charismatic and cosmopolitan Chairman J. R. D. Tata and his competitor, the astute nationalist G. D. Birla, set out to Britain and the United States in 1945 with high expectations but returned largely empty-handed, their hopes dashed by internal tensions and an overall shortage of foreign exchange. 

The Congress Party under Nehru, which took office in August 1947, was committed to “planning” (the mantra of the day) but riven by factional differences between Right and Left. In April 1948, a conciliatory Industrial Policy Statement sought to reassure big business and promised a crackdown on labor unrest. The government backed down in the face of threats of an “investment strike” across the entire private sector, welcoming foreign capital for big industrial projects and relaxing majority ownership requirements in joint ventures.⁹ But business leaders reacted differently to these overtures. Birla willingly approached American investors on Nehru’s behalf, while Tata grew determined to secure foreign investments privately. 

As it took shape over the following decade, the so-called “Nehruvian” regime entailed reserving certain industrial sectors for the public sector (unfortunately for Tata, precisely those in which it was a first mover like steel and aviation), the imposition of a bureaucratic licensing system, and halting attempts at curbing monopoly power. The state’s economic policy was hardly “socialistic” (as it outwardly proclaimed in 1955) or even foundationally coherent.¹⁰ It rather sought to muddle through and make do. Anticipating a later Rumsfeldian adage, Minister of Commerce and Industry T.T. Krishnamachari told Nehru that while “some industrialists were unsavoury, they were the only industrialists the country had.”¹¹Tame as it may appear in retrospect, the Nehruvian order did pose a real problem for Tata, which found itself marginalized in New Delhi. 

With outright resistance deemed unwise, Tata’s preferred way of engaging with the planning process became the “joint sector” enterprise. In this model, the private partner would agree to relinquish majority control in exchange for capital investment and day-to-day management control—the purest embodiment of state assistance without state discipline. The inspiration was Air-India International, created after the nationalization of foreign routes in 1948. The government held 49 percent of the shares, with an option to acquire an additional 2 percent, while Tata and private shareholders retained the rest.¹² The feasibility of this model was put into question by the complete nationalization of airlines in 1953, which incensed J. R .D. and damaged his relationship with Nehru. At the same time, under the aegis of non-alignment, the government was entering into negotiations with foreign partners (German, British, and eventually Soviet) to build three new steel plants instead of funding the expansion of the existing Tata steel plant.    

In the end, it was the sudden announcement of the Soviet offer to finance one of the plants that indirectly revived Tata’s fortunes, by galvanizing Cold War panic in the Eisenhower administration. J. R. D. secured a $75 million loan from the World Bank guaranteed by the government, despite an earlier reluctance to abandon the “purely private nature of the venture which Tata wishes to maintain.”¹³ Meanwhile, Birla continued to be deputed by Nehru to negotiate deals in both Moscow and Washington. The discovery of a massive gap in foreign exchange reserves undermined the state’s freedom of policy action, as more “reserved” industries were thrown open to private investment.¹⁴ State-capital relations had improved without substantially compromising Tata’s autonomy, but the honeymoon would be short-lived.  

Slowdown in growth and the origins of liberalization

By the mid-1960s, in the wake of Nehru’s death and the ascent to power of his daughter, Indira Gandhi, big business was once again under attack. In a landmark report based on freshly disclosed company data, economist R.K. Hazari found a “clear and significant increase in concentration of economic power” between 1951 and 1958. The top two groups, Tata and Birla, controlled “nearly one-fifth of the gross capital stock of all non-government public companies,” while the share of the top four had increased from 20.44 percent to 25.66 percent. Hazari concluded that the Nehruvian licensing regime had failed in its constitutionally mandated objective of bringing about a “wider diffusion of economic power” in India. But he did not advocate breaking up or nationalizing the groups, in part because the web of cross-holdings that kept them together could not be untangled. Moreover, given India’s urgent need for growth after two consecutive years of decline, a “complete embargo” on their expansion would have been “suicidal.” Instead, Hazari proposed evening the scales by continuing to strengthen the public sector as a “countervailing force” and building up small and medium enterprises through preferential licensing and long-term industrial finance.¹⁵ 

After the 1967 elections, as she sought to bolster her electoral popularity and respond to a deteriorating economic environment (which included another foreign exchange crisis, a shock devaluation of the rupee, and rising inflation), Indira Gandhi broke with the old guard of the Congress and redefined herself as a populist champion of the poor. As part of this leftward turn, the government implemented a series of radical measures broadly in line with Hazari’s recommendations: the passage of the Monopolies and Restrictive Practices (MRTP) Act (1969), which established a fixed ceiling on group assets, the nationalization of banks and coal mines, and the abolition of the “managing agency” system that enabled the operation of diversified conglomerates. Licensing decisions were centralized in the Prime Minister’s office, sidelining the Planning Commission.¹⁶ The carrots to these sticks were the promise to selectively relax restrictions on favored groups and the absence of strong action on tax evasion. If anything, the onerous disclosure requirements under the MRTP Act and its arbitrary enforcement incentivized concealment and “black money.”¹⁷  

In this treacherous landscape, J. R. D. Tata swung between overt criticism of the government (which reached its highest pitch yet) and backdoor compromise. In 1972, a year after the Prime Minister’s triumphal reelection, J. R. D. was invited to record his views on how to spur economic growth. In the so-called Tata Memorandum, he returned to the “joint sector” idea, proposing to fund a doubling of capacity at the Jamshedpur steel plant by creating a new company with 51 percent majority state control but managed by Tata exclusively. Conversely, the same mechanism could be used to open existing public sector companies such as the Shipping Corporation of India and the Indian Oil Company to private investment.¹⁸ The Communist Party of India (CPI), tenuously allied with the Congress at the time, accused Tata of trying to “completely corner all the funds of the public-sector financial institutions and the state funds” and divert them “to their industrial networks,” thus recreating the managing agency system by another name. Under such an arrangement, the government would shoulder the major financial burden for “joint sector” ventures while giving up managerial control—a lose-lose proposition.¹⁹ The CPI’s attacks failed to resonate as the oil shock of 1973 caused the second drop in annual growth in a decade and Indira Gandhi assumed authoritarian powers to deal with a restive political opposition. 

From 1975 to 1977, a period known as the Emergency, Indira Gandhi ruled by decree, suspended civil liberties, jailed her opponents by the thousands, and launched a coordinated drive to raise productivity and impose economic and social “discipline” (the mantra of the day). Developmental objectives such as family planning, environmental protection, and urban renewal were coercively implemented.²⁰ In theory, the descent into authoritarianism and the Prime Minister’s continuing demonization of “big money” and “powerful classes” should have brought the conflict between state and capital into the open. Superficially, the Emergency appeared to be a textbook illustration of the worst-case scenario business had been warning against—a socialist dictatorship. However, despite internal divisions in the boardroom, J. R. D. publicly supported the government’s “refreshingly pragmatic and result-orientated approach” and claimed that “no freedom of right matters more today than the freedom from want and the right to work and earn a decent living.”²¹ This stance came as a surprise to many, but it was prefigured by Tata executives’ repeated calls for the “maintenance of discipline” as the “basic requirement for orderly development”—phrases which could have come straight from the Prime Minister’s speeches.²²

During the Emergency, strikes and lockouts plummeted, licensing restrictions were relaxed, and corporate assets rose faster than ever before (Tata’s grew by 66.6 percent between 1972 and 1977). The state was suddenly responsive to big business demands—disciplining labor and reducing bureaucratic (but not corporate) corruption. In the process, the state’s own political legitimacy came to depend on the support of business and a nascent middle class.²³ Even after Indira Gandhi’s electoral loss in 1977, when the Janata coalition of socialist, agrarian, and conservative parties (including the future BJP) briefly threatened the nationalization of the Tata steel plant and half-heartedly tried to revive antimonopolism, state-capital relations remained generally cordial.²⁴

In the long run, some of the protectionist measures introduced by the Janata government (such as the expulsion of IBM) played a role in catalyzing the rise of the software industry.²⁵ Extraterritoriality came into play once again. Tata Consultancy Services (TCS) had struck an early partnership with IBM’s rival Burroughs in the race to bring computers to India and began recruiting talented Indian software engineers to offer low-cost data processing services to American companies, giving rise to the “offshoring” model.²⁶ A similar story could be told about the spectacular success of the domestic pharmaceutical industry. As Chirashree Das Gupta has insightfully argued, in the 1970s “the effective strategy of the state became to respond to new demands from an emerging new capitalist class using lower-grade technologies in the domestic market that were not directly dependent on the licensing system.”²⁷ Meanwhile, in the absence of a robust antimonopoly regulatory regime or substantive corporate governance reform, the largest groups remained firmly ensconced at the top of the pyramid.²⁸

Tata in the present

In 1991, facing an acute balance of payments crisis that mirrored the situation in 1958, the Congress government under Prime Minister P. V. Narasimha Rao and Finance Minister Manmohan Singh introduced sweeping liberalizing reforms, removing many licensing requirements, monopoly controls, and foreign investment restrictions. For its part, Tata responded by embarking on a series of high-profile foreign acquisitions, recalling the 1950s strategy of leveraging extraterritoriality. The purchase of Corus Steel and Jaguar Land Rover in the UK proclaimed Indian capitalism’s triumphant “arrival” on the world stage it had ostensibly abandoned.²⁹ However, the 2008 crisis exposed the risks of going too far down this path. The Corus acquisition turned out to be a poisoned chalice, as Tata Steel lost its competitive advantage derived from captive ore mines in India and became exposed to both Chinese competition and European political instability (in the form of Brexit). Senior Tata leadership grew divided on how to proceed, leading to a boardroom coup and ensuing court battle that tarnished the group’s public image.³⁰

Domestically, Tata became increasingly enmeshed in lobbying scandals and state-level political machinations during the two terms of the Congress-led United Progressive Alliance (UPA) government (2004–14). Protests over land acquisition in West Bengal stalled plans to manufacture the innovative Nano, a miniature, low-cost “people’s car.” The project then shifted to Gujarat following a generous offer of land and tax concessions by then-Chief Minister Narendra Modi. Ratan Tata joined Ambani in effusively praising Modi as “a leader of grand vision.” The stage was set for the 2014 elections to bring Tata closer to the corridors of state power than it had arguably ever been. 

Tata’s experience indicates that, even in the midst of an undeniable deglobalizing turn, the Indian economy will never be fully autarkic (nor was it during the heyday of Nehruvianism). Even without the export-led-industrialization (ELI) strategy that underpinned the East Asian “miracle,” Indian business groups have survived by positioning themselves as conduits of foreign capital, technology, and expertise—or, in a more conceptual vein, as mediators between global and national scales of economic activity. Geopolitical shifts can dramatically alter the domestic market, strengthening some groups at the expense of others. In the wake of the COVID-19 pandemic, the Russian invasion of Ukraine, and China’s deteriorating relations with both India and the United States, reshoring manufacturing and increased defense production will become a major source of strength for Indian conglomerates. Due to its extensive horizontal diversification and long track record of investing in capital-intensive and high technology projects, coupled with its embrace of Modi’s Atmanirbhar agenda, Tata should do well in these areas. It is no surprise that India’s first semiconductor assembly plant, announced in February 2024, will be a Tata project. 

Viewed in historical perspective, state-capital dynamics in India fluctuate constantly and are not always what they seem. It cannot be said that the state has (yet) been fully “captured” by big business, nor can it “engineer” a pliant capitalist class to deliver growth on command. Periods of economic expansion, such as the early 1950s, late 1980s, or mid-2000s, tend to enhance and concentrate corporate power. Slowdowns, as in the mid-1960s, early 1970s, and late 2010s, create realignments as conflicts break out in the open and compromises are reached. A near future of continued high growth with single-party political control and a capitalist class unable or unwilling to exercise its autonomy from the state would be unprecedented.