Bury the past

Tata Steel should now focus on its Indian operations

The wrong turn that Tata Steel took in 2007 to acquire, at the peak of the global business cycle, European steel maker Corus for a phenomenal $12.9 billion continues to drag it down. To put an end to the bleeding at the rate of £1 million per day, Tata Steel announced in March its desire to sell its British business. No progress has been made on that front, largely because of the British government’s inability to be forthright on how it proposed to lighten the pension burden of Tata Steel’s UK operations. To this has been added the multiple uncertainties that have resulted from Brexit, the verdict in the UK referendum in favour of exiting the European Union. If, as a result, selling in Europe gets tougher for UK businesses then that can hardly augur well for the UK operations of Tata Steel. That perhaps explains the latest decision by Tata Steel to put on hold the sale of the UK business and instead work for a joint venture with the German heavyweight ThyssenKrupp.

Consolidation at a time of depressed global demand, with the world’s leading supplier China underselling, makes sense. The only problem is that a clear resolution is unlikely to happen in a hurry. Even if it does, the thorny issue of what to do with the British operations of Tata Steel will merely be moved to the lap of the joint venture. If ThyssenKrupp refuses to include the British assets of Tata Steel in the joint venture, then Tata Steel will be left holding the sick baby and have to return to the thankless task of having to close down its UK operations with all the negative public fallout of the loss of thousands of jobs in the UK. Joint venture or not, the only realistic path that remains open for Tata Steel in the UK is to end its manufacturing presence there as Britain has ceased to be a viable location for globally competitive manufacturing.

Closing down or selling overseas operations, which have no prospects of making money, will be applauded by shareholders of Tata Steel, who have ruefully seen the blue chip in their portfolio come to such a sorry pass for no good reason other than the then management’s fondness for the memory of British Steel, which had been subsumed in Corus. In 2015-16, globally Tata Steel lost Rs 3,049 crore but made a profit of Rs 4,901 crore from its Indian operations. Steel making in India remains profitable and Tata Steel has added substantial new and efficient capacity through the completion of its Kalinganagar project. India’s infrastructure needs remain enormous and the potential demand for steel is huge. India’s raw material advantages in steel making and Tata Steel’s historical access to them also remain. With a competent management in place, the company can have only one goal before it - say goodbye to the past by paying whatever price needs to be paid and look ahead to a promising future within India.