There are many reasons to be optimistic about India's economic future: A vast potential consumer market; a large and growing middle class; many well-educated and motivated workers; and the widespread use of English, the lingua franca of global commerce.

Why, then, is India still not quite as big a rising star as China? Ranan Tata, chairman and chief executive of Tata Group, the diversified Indian conglomerate, offers some insight on where his country is going, and what it must change to realize its potential.



PORTFOLIO.COM: Do you believe that India is headed toward economic superstar status?

RATAN TATA: "Economic superstar" is perhaps too strong a term to use for India, even looking to the future. While India's already large economy will certainly grow faster than the more mature economies, and take its place among the 3 or 4 largest economies in the next two to three decades, this will happen due to our population, demographics and resources.

I think to be an economic superstar would mean growing at, or close to, our full potential. This would require much deeper and broader economic reforms on the one hand and effective government intervention in areas such as health, literacy, and infrastructure, especially in rural areas, on the other hand.

PORTFOLIO.COM: What do you see as the investment possibilities in India, especially in the various sectors in which Tata is involved, and in infrastructure elements such as airports?

RATAN TATA: India has tremendous investment potential across a very wide variety of sectors, due to our relatively early stage of economic development. If you look at the per capita consumption practically of any item, there is potential for large increases over the next few decades as the economy grows and per capita incomes increase.

You see this potential reflected in the investment plans of many Tata companies -- we plan to expand capacity many-fold in sectors ranging from auto, steel to hotels and power.

Regarding infrastructure sectors, we actually have a large deficit in almost every infrastructure sector whether airports, power, roads, etc. This is an area that needs large amounts of investment, perhaps two, or may be even, three times the amount that is being currently invested each year. Many of the impediments in infrastructure investments are being addressed and India now has telecom as a success story; ports and roads have seen major investment, while airports is an opportunity area and so is power -- though there are still major issues in the power sector that need to be tackled.

PORTFOLIO.COM: What are your concerns and reservations about India that you feel may thwart its economic ambitions?

RATAN TATA: There are several concerns and reservations. The most fundamental is that doing business in India is far more difficult than in most countries that I see us being compared with. Some of the major items that contribute to this are excessive regulation, red-tape and bureaucracy in many sectors, the lack of infrastructure, frequent changes in government policy and most importantly, the fact that vested interests often so easily subvert the system for personal benefit at great cost to the country. I also see economic reforms moving in fits and starts -- as a nation we seem to reform only during a downturn or a crisis. When the going is good, our appetite to push further reforms diminishes and therefore our rapid growth phases are rarely sustained beyond three to five years.

PORTFOLIO.COM: Do you see prospects of strong economic, commercial and political ties between the West and India? What more might be done?

RATAN TATA: We have already seen the strengthening of economic, commercial and political ties between the West and India, especially in the last decade. I think the Doha Round is a great opportunity to strengthen economic and commercial ties in a multilateral framework and I am concerned that it may be delayed for two or three years, unless some of the recent efforts are built upon aggressively. I also hope that the Indian government concludes the civil nuclear agreement with the US -- that is a very important initiative and the US has invested a lot in that effort to build stronger ties.

PORTFOLIO.COM: Could you offer some insights about the corporate community's expectations with regard to a blossoming India?

RATAN TATA: One of the things I noticed during our US-India C.E.O. Forum interaction was that in the US, and perhaps in most O.E.C.D. countries, there is an explicit and synergistic partnership between the Government and industry with both of them keen to promote economic growth. To elaborate, the government in the U.S. views U.S. industry as the primary driver of employment creation and generator of tax revenues, and therefore engages in an open and transparent dialogue as to how conditions can be created, both within the country and in terms of international trade and investment relationships, to increase employment and accelerate economic growth. I think this requires a fundamental change in the political and bureaucratic mindset in India, which, if it happens, would benefit the country enormously. I see only a few senior politicians that have adopted such a mindset and Kamal Nath [India's minister of commerce and industry] is one such person.

PORTFOLIO.COM: How could this be India's "century," given the country's low literacy rate, the percentage still below the poverty line, the percentage of children under five who are malnourished?

RATAN TATA: We could call this India's "century" because we will be given an opportunity to address the issues that you have raised -- illiteracy, poverty, and malnourishment. There is a chance for us to make rapid and significant progress in addressing these key development issues though faster and more inclusive economic growth.

PORTFOLIO.COM: What are the challenges facing India today in terms of growth?

RATAN TATA: The key challenges facing India today in terms of growth is to "de-bottleneck" the system so that we can attract global capital and talent, increase capacity rapidly across industries and sectors and grow to our potential.

PORTFOLIO.COM: What does a young, vibrant population in India mean in terms of the economy?

RATAN TATA: A young, vibrant population provides favorable demographics that are an opportunity for India -- due to the potential of a large workforce, greater savings and investment leading to rapid economic growth. I say "opportunity" because these outcomes are not assured but will need coordinated efforts from the Government and industry to tap into the young population's potential. Tapping into this potential requires major investments in education at all levels from primary to technical and post graduate. It also needs better infrastructure -- both urban and rural. Lastly, we need to remove bureaucracy and red tape so that there is much greater investment in manufacturing and services that can productively employ the large increases in workforce that are anticipated.

PORTFOLIO.COM: How can India make growth all-inclusive?

RATAN TATA: Growth can be made all-inclusive by providing opportunity to all. By "opportunity" I mean that we need to ensure that we make education and basic infrastructure available to all -- especially to the economically weaker sections, remote and rural areas and women.

PORTFOLIO.COM: What role do you see community organizations play in India's sustainable development, especially when it comes to women and children?

RATAN TATA: Community organizations can perform a range of functions -- from monitoring government programs relating to literacy, health, malnutrition, etc., to preventing exploitation of child labor or women.

PORTFOLIO.COM: Is India a better place to do business than China?

RATAN TATA: The Tata Group does not have a major presence in China as yet so it would be hard for me to compare the two countries' on specifics. Broadly, I feel that China is more open and easy to invest in, whereas India is more fulfilling and rewarding in terms of returns, once investments have been made.

PORTFOLIO.COM: Can the government, the private sector, and nongovernmental organizations work together for their mutual benefit?

RATAN TATA: I certainly think they should. The fact that they do not is one of the key reasons for many large and economically important projects being delayed. India's ability to grow rapidly is being impaired by projects getting stalled or delayed due to disputes over land, rehabilitation and resettlement and compensation claims. Of course, there are sometimes vested interests at work that want to ensure that some projects get delayed.

I also feel that there should be less suspicion from the Government towards the private sector, as this leads to the private sector and the Government not maximizing the synergies of working together.

PORTFOLIO.COM: How is the ethos of Indian society different that enables it to be so flexible and accommodating to business?

RATAN TATA: Indian society is intrinsically pluralist and perhaps that is what makes it flexible and accommodating. However, that does not necessarily make for a good place to do business, as there are other factors that are important for investment and business -- such as predictable and consistent policies and some of the other items I have mentioned earlier like infrastructure, and less red tape.

PORTFOLIO.COM: What is the best way to promote entrepreneurial spirit in rural India?

RATAN TATA: Processing of agricultural produce in my view is a key to generate employment at the most basic, rural level. We currently process a very small quantity of our total produce -- increasing this will not only generate employment; it will also increase rural revenue, and reduce wastage. Agro-processing will bring with it, employment in a host of supporting industries -- logistics, cold chain, packaging, etc. We also need to look at industries such as tourism that can provide employment distributed across the country and contribute to maintaining our natural and historical ‘tourism' assets. Handicrafts also need to be promoted, especially in developing foreign markets for them to sell to.

I think the entrepreneurial spirit is very strong in India regardless of rural or urban. What is lacking is often the means to translate ideas or proposals into reality -- financing and banking penetration, market access, and infrastructure would be some of the key facilitators for promoting entrepreneurship in rural India.

PORTFOLIO.COM: How will India meet the challenges of environmental pollution, degradation and global warming, if it is to protect its population from floods, droughts, and water and air pollution in cities?

RATAN TATA: There would be two themes that I could think of -- the first would be that we balance industrial and economic development and environmental preservation. Today, it is often an "either-or" situation where in some cases pressure groups and environmentalists totally delay a project and do not let it happen or, in the opposite case, a polluting project is implemented without being required to take mitigating measures to reduce pollution. Very often those who can manage the "system" are not affected by concerns for the environment and their projects move ahead with no protest from N.G.O.'s and no strictures from the government. We need to develop an even-handed and balanced approach where neither objective is sacrificed. There are sufficient examples from countries such as Australia, Brazil, and Canada on how even the most polluting industries can thrive alongside environmental preservation.

The second theme would be that we must lay far greater emphasis on sectors such as tourism that not only have a low impact on the environment but even pay for environmental preservation. Many of Africa's game reserves are an outstanding testament to this.

PORTFOLIO.COM: How can India curb corruption?

RATAN TATA: Corruption is one of the most debilitating problems that India faces and needs to be tackled at multiple levels. In terms of the government to industry interface, the key thing would be to reduce discretionary interpretation in our rules, procedures and laws. In terms of electoral process, we need to move further on the transparent funding of elections. In terms of law enforcement, perhaps reducing political control over the police force will be required. These are just some ideas -- as I said, corruption is deep rooted and endemic and we need to tackle it at multiple levels.

PORTFOLIO.COM: Can India absorb the values of the globalizing world, and yet retain its traditions?

RATAN TATA: Yes, I think so.

PORTFOLIO.COM: What best gives you hope as an Indian citizen?

RATAN TATA: The energy of our youth, the richness and diversity of our culture and the pockets of world-class excellence that one sees in many different areas.

The Tata Group comprises 96 operating companies in seven business sectors: information systems and communications; engineering; materials; services; energy; consumer products; and chemicals. The Group was founded by Jamsetji Tata in the mid 19th century, a period when India had just set out on the road to gaining independence from British rule. Consequently, Jamsetji Tata and those who followed him aligned business opportunities with the objective of nation building. This approach remains enshrined in the Group's ethos to this day.

The Tata family of companies shares a set of five core values: integrity, understanding, excellence, unity and responsibility. These values, which have been part of the Group's beliefs and convictions from its earliest days, continue to guide and drive the business decisions of Tata companies. The Group and its enterprises have been steadfast and distinctive in their adherence to business ethics and their commitment to corporate social responsibility. This is a legacy that has earned the Group the trust of many millions of stakeholders in a measure few business houses anywhere in the world can match.