Euphoria in India Over a Foreign Acquisition

Am glad a respected India-based historian has accurately psychoanalyzed the euphoria in India:

India Is Reveling in Being the Buyer - New York Times

“There’s a deep inferiority complex,” said Ramachandra Guha, a prominent historian and social critic. “Sometimes it manifests itself in excessive deference. At the same time, we exalt in cases of success over the white man.”

Ever since the Tata bid for Corus was announced, I've wondered why the largest single industrial investment in emergent India is not in or for the fast-growing Indian market -- not even the steel sector when a huge infrastructure backlog is threatening to knock a point or two off India's projected GDP growth of 9% -- but is a windfall for the European shareholders of Corus.

Is today's Indian industry and its growth potential too shallow to give better returns on $11 billion? To be sure, this acquisition is not about increasing Tata Steel's competitiveness in the Indian market by acquiring technology, management or more efficient suppliers from Corus.

On a purely jingoistic metric, if anything, Ratan Tata's move is opposite of Jamshedji Tata's when he set up India's first cotton mill in Nagpur in 1874 to process central India's raw cotton instead of finding its way to Manchester mills only to be exported back as cloth (as an aside, it helped the Tatas mitigate export losses after cotton production resumed in the South post the US civil war). Granted that was in a different era and in a vastly different global economic environment. Nonetheless, value-add and moving up the value chain from raw materials to finished goods are a constant.

The projected $300 million annual synergies in the Corus deal are from Tata shipping semi-finished products from existing Indian capacity for Corus' automobile customers. One hopes that is the real reason and that this isn't a ruse to ship Orissa's large iron ores, as is preferred by the Indian central government that gets export duties on ores but gains much less, unlike the state government, from a steel plant in Orissa. All of this makes the jingoistic euphoria in India harder to swallow.

There appear good business reasons for the shareholders of Tata Steel, Tata Sons and Corus to get to 100 million tonnes faster and cheaper than setting up greenfield steel mills. In capitalism, for good reasons, that is all that matters and not jingoism.

One wonders if the Tata Sons shareholders, more than any Indian shareholder, have their ears to the ground and know something to diversify holdings away from the booming Indian stock market and emergent Indian economy.