That’s the lesson being given to Tata Motors
Most countries welcome their companies venturing overseas and taking over local giants to, eventually, become multinationals. There is, of course, the prestige attached to this—when he visited the JLR factory in the UK, prime minister Modi was really visiting an Indian firm’s overseas plant, not that of an English auto major. There is also the chance to get access to new technology and new markets. When the Tata Motors bought JLR—and Tata Steel bought Corus—the plan was to, at some point, bring back home some of the value-added work, as also to benefit from JLR and Corus’s technology and brand; when Indian IT firms buy global firms, the idea is to get both niche technologies as well as access to their customers.
Which is why it comes as a big surprise, as Ajai Shukla reported in the Business Standard last week, to find that the ministry of defence has decided that, while evaluating Tata Motors for the Future Infantry Combat Vehicle, only its local turnover and profits will be evaluated—those of JLR will not be taken into account. Given company law in India, as it does the world over, recognises the profits and revenues of subsidiaries as part of the parent company, this is decidedly odd, and seems to suggest the defence ministry is discouraging firms from going overseas. In this case, there is an added problem apart from the fact that Tata Motors sans JLR doesn’t look as formidable any more—from topping the revenue charts, it drops to third position which could be a problem given that a firm’s size is a crucial determinant in the final evaluation. The additional problem is that, thanks to a huge loss in the Indian operations in FY15, Tata Motors may even get knocked out of the ring completely. Given how the defence ministry proposal looks as if prompted by vested interests—there is no logic for it considering that a foreign subsidiary makes Tata Motors more formidable, not less—the government would do well to have a relook. Indeed, given the poor level of interest shown by foreign investors so far since there have been lots of ‘clearances’ of defence projects but few orders placed, the government would do well to address investor concerns, not add to them.