The ad campaign captured the essence of Jamsetji Tata’s belief that for a business to be long term sustainable, it needs to serve a larger purpose—the community is not just another stakeholder for the business but is, in fact, the very purpose of its existence.
By 1988, Tata Steel had been providing municipal services in Jamshedpur for nearly eight decades. This was critical for the smooth operation of the steel plant. The control secured the road network, which sustained the massive logistics involved in moving raw materials and finished goods through the town. Further, there was no segregation of utilities—like water and power—needed for operation of the steel works and those needed for sustaining the township.
This arrangement had worked to everyone’s satisfaction and hence, we were surprised to see some activists, led by one Jawahar Sharma, start a legal battle against Tata Steel and the government of Bihar for the creation of an elected municipal corporation to take over the ownership and operation of the civic infrastructure of Jamshedpur.
The timing coincided with the government of Bihar’s decision to convert the freehold land under Tata Steel’s control to a leasehold. The argument of the activists was that the Constitution of India guaranteed a third tier of local self-government to decentralize democracy and administer local affairs in rural (panchayats) and urban areas (municipalities). Their belief was that having elected representatives at the helm of the civic body would lead to a more equitable development of the city. We will come back to this in a moment.
Years of turmoil
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My 14-year stint at Jamshedpur offered me a rare ringside view of one of the most tumultuous periods in the history of the company. Tata Steel operated in a protected market where the steel prices were set by the ministry of steel based on the cost of production and a reasonable profit. Demand was far in excess of supply and the sales team had a field day with golf, lunches and dinners. In 1991, economic liberalization changed everything. Overnight, import duties were slashed on a wide range of commodities and products. On the back of India’s protectionist policies, domestic industry had grown sluggish, unenterprising and obsolete over the decades. The industry, in general, and the steel industry, in particular, had not modernized sufficiently to remain globally competitive. Suddenly, it had to deal with the big boys of global steel. Customers now had choices and their choices mattered.
At exactly the same time, Tata Steel was going through internal challenges and there was a bitter battle of succession following the appointment of Ratan Tata as the chairman of Tata Sons. CEOs of some group companies—and the most prominent among them being Russi Mody—who had taken full advantage of the empowering culture that J.R.D. Tata had actively nurtured, to run their companies like their own fiefdoms, did not take too kindly to the succession at Tata Sons and began initiating moves that would allow them complete autonomy in running the affairs of their companies, free from the control of the holding company.
Their confidence to pull off this coup came from their knowledge that the shareholding of Tata Sons in their group companies was in single digits, and the government controlled financial institutions that held a majority stake would lean in the direction that the government of the day pointed to. After intense lobbying by both factions with political parties and trade unions, Ratan Tata eventually won the day, established his unquestioned leadership and preserved the primacy and integrity of the group.
Dr J.J. Irani, who took over as the managing director of Tata Steel in 1992, was a complete antithesis of his larger-than-life predecessor, and successfully steered the company during the difficult days that followed liberalization. When his term ended in 2001, Tata Steel was the lowest cost steel producer in the world and also one of the most profitable steel companies. It gave the company the financial heft to acquire the Anglo-Dutch steelmaker Corus Group in a deal that became a matter of national pride. Tata Steel won the bidding war with a $12.1-billion auction offer that trumped Brazilian rival Companhia Siderurgica Nacional. It was quite evident that Tata Steel had bitten off more than it could chew.
Just a year before the acquisition of the Corus Group by the Tatas, Mittal Steel had acquired Arcelor to emerge as the largest steel company in the world. It was one of the most publicised deals in corporate history. Both the Mittal and the Tata deals, struck at the peak of the global steel cycle, soon soured as Europe and the US went into an economic downturn, resulting in declining steel prices. With the wisdom of hindsight, the decision to acquire Corus in an auction at the peak of the global steel cycle was probably a mistake.
The fight over land
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In the midst of all the turmoil and upheavals, the legal battle over constituting an elected municipality to run the town of Jamshedpur continued. A little bit of context would be helpful to understand this issue.
The Tatas had set up the steel company, and built the town of Jamshedpur, at the height of the British Raj. By this time, the monopoly and influence of the East India Company had declined substantially, and many British companies that were actively scouting for opportunities in the minerals and manufacturing sectors were quick to stake their claims as soon as new mineral resources were discovered. This was also a period of utter confusion on the political front where British-ruled territory was contiguous with princely states and the relationship between the two was ambivalent and never transparent. Laws regarding land ownership and acquisition were opaque and in a state of constant flux. Competing on this uneven and uncertain playing field required private Indian capital to exploit ambiguities in the law, collaborate with princely rulers and local intermediaries, and even play one against the other in order to ward off entrenched British interests.
To the credit of Jamsetji Tata and his associates, they navigated this minefield with poise and level-headedness to make the final choice of location for the steel plant.
The first choice was Sini junction which was located roughly 200 miles west of Kolkata within the borders of the Seraikela princely state. However, after a lot of deliberation, in 1907, the village of Sakchi was chosen as the final site. Located at the confluence of the Kharkai and Subarnarekha rivers, approximately 175 miles west of Kolkata on the Bengal-Nagpur Railway, Sakchi (later renamed as Jamshedpur) was ideally situated to take advantage of the main natural resources necessary for steelmaking—coal, iron ore, limestone, and water.
The other unstated but not insignificant reason for this choice was that Sakchi was within British territory and this was expected to minimize potential resistance from the local inhabitants. Also, the passage of the Land Acquisition Act by the British government in 1894 allowed for the transfer of land to private companies in territories administered by them, provided they fulfilled a ‘public purpose’, which usually meant infrastructural development projects or core manufacturing. Some of the activists have argued that the Tatas, with the support of the British government, used this act to their advantage to become somewhat of a ‘quasi-sovereign power, simultaneously acting as employer, landlord, and municipal government’.
This is an unfair accusation given the vagaries of doing business in those times and the subsequent commitment to fair play that the Tatas consistently demonstrated.
But Tata Steel’s decision to shift location to British territory immediately faced a deal-breaking piece of new legislation. Faced with growing rebellions and violence in the tribal areas, the Chota Nagpur Tenancy Act (1908) was passed to protect tribal interests. Since this act expressly prohibited the alienation of tribal lands, there is a belief in some quarters that the Tatas somehow managed to delay its implementation in order to successfully carry out their acquisitions.
By 1929, Tata Steel had taken under its ownership 15,725 acres from the provincial government under British rule, and along with it, the responsibility to build the necessary ecosystem to support a large steel factory.
However, in the years following independence, in a bid to end the inequitable and exploitative zamindari system, new land ownership laws that were extremely restrictive would be enacted, and Jamshedpur’s anomalous legal status would come under growing scrutiny. Faced with a mounting sentiment against excessive land ownership by a private entity and the legal powers vested in the state to rectify any anomaly, Tata Steel had no choice but to reluctantly sign an agreement with the state of Bihar in 1984, and as per the terms of this agreement, the entirety of the acquired area was retroactively vested in the government. The company would henceforth hold it on a renewable lease, subject to the company providing municipal services and civic amenities in Jamshedpur. This would provide the legal basis for the demand to finally declare Jamshedpur a municipality.
Industrial town
The Constitution of India allowed for the creation of ‘industrial towns’ where the standard model of local governance in the form of an elected municipality was not the most effective solution. Industrial towns are special economic areas where concession in laws and other incentives are provided to private bodies to set up economic units for ease of doing business. The defining feature of an industrial town is that there is limited diversity in economic activity and most of the economic value creation is done by one or a few related industrial enterprises. An elected municipality makes sense when there is diversity in economic activity and no industrial entity is predominant. For an industrial town like Jamshedpur, an elected municipality would be totally unfair on Tata Steel and would eventually lead to a slow decay of the private industrial capital’s shining jewel.
The only argument against classifying Jamshedpur as an industrial town is that it is not a small town but a sprawling city of nearly 1.7 million people. All these must have weighed on the minds of the decision makers when they decided to finally classify the city as an ‘industrial town’.
The British deputy commissioner of Singhbhum brought out this contradiction very eloquently as early as in 1927: “It is clearly undesirable that a private company, almost uncontrolled by government, should be the one and only authority in a large modern town. It is particularly wrong that a company supplying essential public services, like water, power and light, should not be subject to the law which ordinarily controls such services, and be able to enforce their will and get rid of undesirable persons by refusing supplies. On the other-hand, a democratic form of government would be dangerous in Jamshedpur, and the company must always have a large voice in the administration of the town”.
Classifying Jamshedpur as an industrial town would have formalized this balance by allowing more scrutiny by representatives of the government and local residents. This additional scrutiny would benefit Tata Steel as much as it would benefit the other stakeholders. However, this classification would have probably deprived the region of certain central government funds and had thus been put on hold.
A public interest litigation in the supreme court rapidly reached a point where the state government was forced to take a call—either initiate steps to create an elected municipality or declare Jamshedpur as an industrial town. It has chosen the latter. The activists don’t seem very happy and continue to believe that this will perpetuate the inequitable development of the city.
Activists don’t have to deal with the conundrums of real life and this is probably a good thing because it helps create checks and balances in civil society. The reality is that even elected municipalities have a constant struggle with creating equitable development, and large cities with well-run civic bodies too have pockets and enclaves where the infrastructure and services are superior to those in the rest of the city. The decision of the government of Jharkhand to declare Jamshedpur as an ‘industrial town’ (in December 2023), expected to be implemented after the completion of a few formalities, is in the best interest of everyone given the city’s unique history. It is time to put this issue to bed and move on.
T.N. Hari is an author and founder of Artha School of Entrepreneurship.