 
Foreword

JRD Tata led Tata Steel as the Chairman of the Board of Directors for more than four decades, from 1939 to 1984. During his long tenure as the Chairman of the Company, he witnessed the country's transition from an Imperial Colony pre-1947 to the early years of freedom and India's experiment with democratic socialism. After the first decade of Independence, India entered into a phase of nationalisation of key sectors and administered control regime across many sectors. As the country moved from one phase of economic adversity to the other, JRD Tata led and guided Tata Steel admirably through those very difficult and challenging times. His vision for Tata Steel was to be a modern, sustainable and profitable Company that is also a model corporate citizen.

In an era when communicating directly with the shareholders was not normally the practice, in 1960,

JRD Tata initiated a unique method of sharing his thoughts, opinions and vision with the 70,000 shareholders of the Company by writing a Chairman's Statement in the Annual Report of the Company. The enclosed collection of letters to the shareholders during the period 1960 to 1984 provides a glimpse of his views on issues that were relevant not only for Tata Steel but also for the country. His candid and often critical assessment of the Indian economy provides a vivid narrative of the state of the nation during this period and the challenges faced by the Company.

On behalf of the entire Tata Steel family, it is my proud privilege and honour to present to you a rare collection of 25 years of communiqué from the legendary Chairman, Bharat Ratna JRD Tata, to the shareholders of Tata Steel.

Koushik Chatterjee

Group Executive Director

Tata Steel Limited

Mumbai, July 29, 2017

Contents

1960-69 – The Struggles of Modernisation

In a decade marred by scarcity post the India-China war, poor quality of raw materials and increasing duties and taxes, we strove to improve performance through new process technologies riding on the back of modernisation and expansion programmes

1970-79 – The Era of Closed Economy

With increasing government control over the private sector, as well as a move to nationalise Tata Steel, the decade was a challenging one. Restrictive policies resulted in a fervent plea for economic growth with social justice. This resulted in the first Industrial Policy document to be announced in 20 years

1980-84 – The Winds of Change

The start of what was to be a decade of hope as the government eased control over pricing of certain steel categories for the first time. It was also the decade where we diversified our business and entered into a new phase of modernisation and expansion

1960-69

The Struggles of Modernisation

Chairman's Statement for the year 1959-60

Bombay, 7th September, 1960

In order to save time at the annual meetings and also to give an opportunity to shareholders to know in advance my views and comments on the affairs of the Company, I am adopting, from this year onwards, the practice of incorporating the remarks I would have made in my speech in a statement, of which this is the first, attached to the annual report and accounts for the year. I hope this new practice meets with your approval.

2. The delay this year in publishing the report and holding the annual general meeting has been explained in the Directors' Report. I am sure it will be a matter of as great regret to you as it is to me that Government have been unable up to now to come to a decision on our legitimate claims for a revision of our retention prices, some of which have been before them for nearly two years.

3. Shareholders will no doubt be disappointed that the Company has not been able, during the year under review or up to this day, to reach a rate of production nearer to the planned capacity of the expanded plant. While I share their disappointment, there is no cause either for worry or despondency. First of all, in spite of the difficulties which still exist, particularly in regard to the quality and regularity of supplies of raw materials, we have already stabilised our production at a rate equivalent to about 80% of full capacity. The continuous operation of a steel plant at its maximum capacity depends on such perfect balance and coordination between diverse elements of production, transport, labour and management, covering the operation of so many separate departments and units of plant, that it is rarely achieved on a year round basis. In fact, in most countries an average rate of production of 80% would be considered quite good.

4. Secondly, the difficulties which we must still overcome to get full production from expanded facilities are quite clear and the remedies well understood. As explained in the Directors' Report, they relate mainly to the deterioration in the quality of coal and iron ore, to delays and irregularities in the transportation of raw materials to Jamshedpur over a heavily strained railway system as well as to the need for certain modifications and additions to the ore crushing and screening plant and to Steel Melting Shop No. 3. Some of the remedies require action by us, others by Government. In both cases action has been initiated already or is being planned.

5. To counteract the increase in the ash content of coke, which severely affects operation at the Blast Furnaces, the maximum use of washed coal is necessary. As stated in the Directors' Report, increased despatches of washed coal from the Company's own washeries from about now on should appreciably reduce the high ash content in coke, from which the plant suffers today, but this serious handicap cannot be wholly surmounted until some time in 1962-63 when Government's long delayed Bhojudih washery is completed.

6. In the case of iron ore, the problem is the two-fold one of improving the quality of the ore despatched from the mines and of ensuring regular supplies of properly blended and sized ores to the plant. In order to achieve a complete and permanent solution of this problem, we have taken in hand a programme aimed in the short term at improving the performance of the ore crushing and screening plant which today constitutes a serious bottleneck and in the long term at beneficiating the ore raised at the mines, as well as at storing and blending it at Jamshedpur before it is fed to the sinter plant and the blast furnaces.

7. In this connection, I wish to record our appreciation of the assistance we have received from the National Metallurgical Laboratory at Jamshedpur, whose investigations, undertaken at our request, have formed, to some extent, the basis of our ore beneficiation programme.

8. Apart from beneficiation, the process of blending and sizing ores to suit the exact requirements of the furnaces is also essential to achieving the best results. We have been able all these years to do without elaborate storage and blending facilities because of the good quality of hand-mined ore, the reasonably low percentage of ash in coal and the regular transportation provided by the railways. Conditions, however, have greatly changed in recent years. The automatic beneficiation achieved in the past from hand-picking of the ore is no longer possible in mechanised mining as we now have at Noamundi and will adopt at Joda, while, under the strain imposed on the railways by successive Five Year Plans, and particularly the massive increase in the transport of ores and coal for the expanded steel industry, we can no longer be sure of the consistently regular arrival of raw material trains which is absolutely essential to good operations when raw materials are fed straight into the plant from incoming wagons without prior stacking. Furthermore, now that we have adopted the modern practice of sinter and high top pressure in our blast furnaces, operating requirements are far more exacting than they were in the past.

9. The immediate short term programme, for which action has already been initiated, and which it is hoped to complete in a year or so, will, apart from some additions to mining equipment and to the old washing plant at Noamundi, consist mainly in the provision of wet screening at the ore-crushing and screening plant at Jamshedpur. The long range plan, which will take about four years to complete, will comprise two main projects. One to be undertaken at the mine will consist of a detailed geological survey of our main mines, large scale washing tests of ore and, based on such survey and tests, the possible construction of ore beneficiation plants at Noamundi and Joda. The other will provide at Jamshedpur complete facilities for unloading, stacking and blending ores and other raw materials received from the mines.

10. The cost of the immediate programme will be something under a crore, while the expenditure to be incurred on the long range plan will depend to a large extent on the survey and tests mentioned above. Whatever the ultimate figure, there is no doubt that it will yield a worthwhile return by way of higher production and lower costs.

11. In order to increase the output of Steel Melting Shop No. 3, it has been decided, in line with the latest and growing practice in other countries, to use oxygen 'on a large scale in the open hearth furnaces to reduce the time taken from one furnace charge to the next. This will require changing the present silica brick roofs of the furnaces to basic roofs and the installation of a large tonnage oxygen plant. These modifications and additions to S.M. S. No. 3 are expected to be completed within two years.

12. We are confident that the various measures outlined in the previous paragraphs will, when completed, enable the works to achieve, and possibly exceed, the full target output of two million tons of ingots and one-and-a-half million tons of saleable steel.

13. The year under review was a full and significant one for us. It brought to a close the decade of the fifties, saw the completion of the biggest expansion programme we have ever undertaken in the history of our Company and the introduction of an entirely new wage structure following three years of intensive studies and negotiations. About half of our plant is now wholly modern and the additional million tons capacity has been put up both in gratifyingly quick time and at relatively low cost. We have spent on it approximately Rs. 106 crores, and even if the total cost comes to Rs. 110 crores, including the cost of the modifications and additions l have mentioned earlier, it will still amount to only Rs. 1100 per ton of ingot capacity. The same capacity in an entirely new integrated steel plant would cost at least Rs. 1800 per ton or over 65% more.

14. I am mentioning these figures because it has been suggested in some quarters that our expansion programme has cost very much more than estimated. It is true that in 1955 when the project was first mooted and no detailed plans and specifications had been prepared or quotations obtained from manufacturers, the programme, including the balance of the uncompleted M.E.P. was estimated to cost roughly Rs. 80 crores. In the beginning of 1956, however, when detailed plans and specifications had been worked out, the total cost of the project as submitted to, and approved by, the World Bank, amounted to Rs. 95 crores. The actual expenditure has been Rs. 106 crores. Even taking a figure of Rs. 110 crores, including the modifications and additions now proposed, the excess would come to Rs. 15 crores, of which about Rs. 6 crores represent increases in import duties on plant and equipment, manufacturers' escalations and increases in the initial provisioning of spare parts. Excluding these items, the excess of expenditure over estimates comes only to about 10% which, by any standard, is a low figure for a project of this magnitude and complexity.

15. The year under review has been one of exceedingly hard work and long hours for most of our officers and staff. Our thanks are due to them and also to the rank and file of our working force for bringing the new plant into operation with about the same total number of men as before. They have adapted themselves quickly and well to the new equipment and may, I am sure, be counted on gradually to increase their efficiency and productivity in the coming month and years. To the extent that our fortunes depend on our own efforts and actions, we have in the long term no reason to be apprehensive of the future. We have the physical and human resources to get the best out of our renovated and expanded plant and, barring the unpredictable effect of Government policies, particularly in the matter of retention prices, I look upon the future of the Company with confidence.

Chairman's Statement for the year 1960-61

Bombay, 31st July, 1961

TO THE SHAREHOLDERS,

The Profit and Loss Account for the year 1960-61, although explained in some detail in the annexed Directors' Report, may have been found somewhat puzzling to shareholders. I would suggest that in viewing our Accounts you take special note of the unusual features and consequent appropriations explained fully in paras 6 to 10 of the Directors' Report. You may also note that the net result of the several transfers from and to the various reserves is that we will have added Rs. 44 lakhs to our total reserves, including the Plant Rehabilitation and Development Rebate Reserve, after providing in full for the foreign exchange loss of Rs. 58 lakhs and paying a total of Rs. 465 lakhs in dividends as compared to nil and Rs. 376 lakhs, respectively, last year. The summarised Profit and Loss Account on page 5 will, I think, make the final picture fairly clear to you. I would like to assure you that the enlarged allocations to depreciation and development reserve and the proposed payment of dividends solely out of past taxed reserves have been made entirely in the interests of the Company and its shareholders.

2. Next to a clear understanding of the financial results for the year, I expect you will be mainly interested in two matters, namely, the plant's performance during the year under review and today and the Company's prospects in the immediate and foreseeable future. I shall therefore devote my remarks to both these matters.

3. 1960 was only the second year of operation of the enlarged and modernised plant at Jamshedpur. Although it is normal for a new steel plant to take two or three years or even more to attain its rated output, you will no doubt have been disappointed at the small increase in our steel production over the previous year. Let us face it: we are not yet in sight of the full production of two million tons of ingots or one and a half million tons of finished steel and are not likely to be for the next two years. The simple and inescapable fact is that, as things are today, we cannot get the required production of coke, pig iron and steel until we are able to feed the required quantities of improved raw materials to the plant.

4. The main obstacle, which equally affects the operation of the other major steel plants in the country in both the Private and State sectors, continues /.,to be the high ash content of coal. Let me remind you that for every 1% increase in the ash content of coal, the production of iron at the blast furnace declines by 5% or more, while the consumption of coke and limestone increases by 5%. Operations are thus doubly penalised. Furthermore, as we have not provided spare coking capacity, the higher coke consumption per ton of iron means that we are short of coke and have to supplement it by outside purchases which are not always possible to the required extent. The problem will be solved only when the washery which Government is building at Bhojudih to wash the coal supplied to us from outside collieries is completed and in full operation. So far as we are concerned, we have fully done our part, as, since October 1960, every ton of coal despatched from our own collieries is washed at our two washeries at Jamadoha and West Bokaro. If, as it should have been under Government's original plans, the Bhojudih washery had been in operation during the past year, there would have been a marked improvement in our output and costs and therefore in our financial results for the year under review.

5. You may feel that some of the factors responsible for frustrating our effort to achieve the planned ingot output of two million tons might have been foreseen and that we should in any case have provided some margin of capacity in the plant to allow for contingencies or unexpected difficulties. It is indeed a fact that no margin of capacity was built into the coke, iron and steel making departments of the new plant, for the very good reason that such spare capacity would have cost quite a few crores of rupees and there was at the time no possibility of raising finance for the project beyond the already formidable amount required for the bare essentials. We hoped that the effect of such adverse factors as might arise would be relatively small and, if the worst did happen, it would still be possible to make the necessary additions or modifications later when the pressure on our financial resources had abated as a result of the annual accumulation of retained earnings.

6. Although the full two-million ton output will take longer to achieve than we had originally hoped, there is no doubt that it will be achieved when the present handicaps have been removed with the completion of Government's Bhojudih washery, improvements in railway transport, the provision of ore beneficiation and blending facilities and the addition of oxygen to the furnaces of Steel Melting Shop No.3.

7. In this connection, I regret to have to report that the Government of India have refused to sanction a very satisfactory arrangement we had concluded with the Indian Oxygen Company whereby that Company was to put up, at its own cost, a tonnage oxygen plant at Jamshedpur from which the Steel Company was to purchase on favourable terms its greatly enlarged requirements of oxygen. On the ground that the Indian Oxygen Company already has too large a share of the business, Government have decided that the plant should either be put up by another company in collaboration with a different foreign firm or that the Steel Company should put up the plant itself. As the first alternative would have resulted in delay and unnecessary complications through the presence of two oxygen suppliers at Jamshedpur, and in the loss of certain financial benefits which would have accrued from the proposal initiated with the Indian Oxygen Company, we had no alternative but to decide to put up a tonnage plant of our own and to shoulder the additional capital expenditure which will amount to over a crore of rupees.

8. As regards the Company's profit-earning capacity and prospects, these are so largely dependent on the retention prices fixed by Government that there is little I can usefully tell you today on the subject. As you know, the previous five-year price period having expired on 31st March 1960, we have since then been operating under a regime of provisional prices fixed for the two-year period, 1st April 1960 to 31st March 1962, subject to revision by Government after the Tariff Commission have made their inquiry and formulated their recommendations some time during the current financial year. The Commission's task should be a somewhat easier one this time as they will have before them actual facts and figures relating to about two-thirds of the period for which they have been asked to recommend revised prices. On the other hand, they will have on this occasion to consider the position not only of the Indian Iron and Steel Company and ourselves but also of the three State-owned plants and to recommend prices appropriate to the requirements of the much enlarged industry as a whole. We shall urge the Tariff Commission that there should be a more flexible approach to the problem of fixing retention prices than has hitherto been adopted. With five major steel plants now in operation instead of two, the old system of fixing prices on the basis of meticulous estimates of output, "product-mix", costs and overheads applicable to a period of years is no longer a workable one. In the fast changing and largely unpredictable conditions prevailing during the last decade and likely to prevail for many years to come, it is well-nigh impossible to make years in advance accurate forecasts of all the many elements that enter into prices. Unfortunately, variations from estimates almost invariably are in the wrong direction. Expectations are seldom exceeded, while owing to unforeseen obstacles mostly beyond the Industry's control, targets are seldom attained.

9. Any rigid and complicated system of fixing retention prices must therefore lead, as it did in our case, to results different from those planned, notwithstanding all the care and thoroughness exercised by the Tariff Commission on their determination. In our case, it has led not only to much lower profits than intended over the last five-year price period and consequently to the failure to earn the surplus of Rs. 14 crores which we were expected to accumulate from profits to finance a part of the Two Million Ton Programme, but also to certain anomalies. For instance, our profit margin on more advanced and costly products, requiring more specialised techniques and more work and skill, has been smaller than on simple and cheaper products.

10. We shall therefore urge that, if an all-embracing system of control over production, distribution and prices is to remain in force, prices should at least be fixed on the basis of broad principles and assumptions with reasonable margins built into them. We shall also recommend that the scheme should exclude specialised products such as wheels, tyres and axles, in respect of which costs and revenues should be kept out of the calculation of prices of ordinary rolled steels.

11. Let us also hope, now that Government are themselves heavily in the steel business, that they will lose some of their distrust of profits and realise that in an industrial society of whatever tint profits are a wholly legitimate and in fact essential source of savings and investment and therefore of economic growth.

Chairman's Statement for the year 1961-62

Bombay, 8th November, 1962

TO THE MEMBERS,

This statement comes to you at a time of national emergency created by the Chinese invasion of India, when our own problems and difficulties must be viewed against this background of war and peril to our country. Whatever our differences with Government may be in regard to their attitude towards our industry and although we may disagree with some of their economic policies, I am sure we are all agreed that, as in previous emergencies involving the country's security, the Company should offer unstinted cooperation and assistance to Government in the prosecution of the war effort.

2. The year under review was dominated by the Tariff Commission's Inquiry and Report and Government's orders thereon. The main features of both have been explained in the Directors' Report. We are mainly concerned here with the reduction which Government have effected, unjustifiably in our view, in the retention prices recommended by the Commission. In this context it is important to bear in mind that the Commission's Inquiry and recommendations related exclusively to a two-year period which had already elapsed by the time the Commission reported. One would have therefore expected that here, if ever, was an occasion when Government could hardly disagree with the Tariff Commission since the Commission's recommendations were based not on estimates, theories and assumptions relating to a period still in the future, but on actual known figures, facts and conditions about the truth and reality of which there could be no argument.

3. After nearly five months of cogitation, Government not only disagreed with some of the Commission's principal findings but even reversed their own previous decision and instructions to the Commission on the important question of the repayment of the special advance.

4. The changes made by Government resulting in a total reduction of Rs. 27.50 per ton in the average retention price recommended by the Commission for the two years 1960-61 and 1961-62, are explained in paras 12 and 13 of the Directors' Report. The most serious change has been in regard to the provision for depreciation and return on gross block. Government rejected the Tariff Commission's view that, for purposes of calculating the incidence per ton of depreciation and return, an output of saleable steel at a rate of 90% of capacity was reasonable. Apart from the fact that it normally takes several years to overcome "teething" troubles and train staff in the use of new equipment and techniques, before so complex a unit as a new steel plant can be made to operate smoothly, the additional handicaps imposed on the steel companies by the conditions prevailing in the country were so serious that, if anything, the Commission was unduly severe in adopting a rate as high as 90% as a basis for their calculations. Yet Government, although well aware that the inability of the steel plants to make more steel was largely due to the appalling quality of unwashed market coal allocated by the Coal Controller and the deficiencies in transport, for both of which they were themselves mainly responsible, decided that the steel plants should have worked at 100% of capacity during these two years and deserved to be penalised for not having done so. Government accordingly reduced the retention prices on that account by Rs. 16.5 per ton which cost our Company Rs. 4 crores over the two-year period, and thus unfairly deprived both the steel companies of the full depreciation and return prescribed by the Commission. This action, coupled with the Minister of Steel's subsequent speeches or statements at Press conferences in which he equated with inefficiency the industry's failure to achieve 100% performance, was particularly hard on our Company which has had to struggle against heavy odds during and after the last World War, and which undertook, at considerable risk, a crash programme of expansion at the express request of Government.

5. Government, according to their resolution dated 7th September 1962, also excluded from the capital block the Special Advance made to the Company between 1954 and 1956. This must mean that in Government's view Rs. 10 crores worth of physical assets should earn no depreciation, let alone a return, on the ground that their cost was initially met from a Government advance. Apart from its unfairness, such a view ignores the obvious reality that plant and machinery are subject to wear and obsolescence, irrespective of the manner in which they were originally financed, and that failure to provide depreciation would clearly be contrary to sound principles of accounting and financial management.

6. In justifying the reduction in the provision for interest on working capital, Government, according to a statement by the Minister as reported in the papers, based their decision on the assumption that the Steel Companies enjoyed the benefit of large interest-free deposits from customers and of large arrears of surcharge not paid into the Iron and Steel Controller's Equalisation Fund. This assumption is totally incorrect in both respects. Advance deposits which are taken only against so-called "bazaar" indents have at no time exceeded a crore, while our dues to the Equalisation Fund were at the end of July 1962 only about Rs. 2½ crores and not Rs. 12 crores as the Minister is reported to have stated in Parliament.

7. Government's reversal of their previous decision that the retention price should include an element for the repayment, with interest, of their Special Advances in terms of their agreements with the two Companies is disturbing although it may not immediately affect our financial position. However, their announcement that, as an alternative, they are considering the possibility of a part of the special advances being repaid out of fresh capital, raises fundamental issues of grave concern to the Companies and their shareholders. This is not the occasion for me to discuss the legal aspects of the matter, but I am sure shareholders will be relieved to learn that the Company has informed Government that an issue of fresh capital would be unthinkable in the present circumstances and, for a number of cogent reasons, would be unacceptable to the shareholders whose consent would be required for the purpose.

8. In our representation to Government we have pointed out that the low retention prices fixed by them, if maintained in the future, will seriously affect our ability to finance the heavy commitment which Government themselves have asked us to undertake to double our coal output in the Jharia Field. The whole of the cost of this project, if it ultimately materialises, will have to be financed from borrowings, including a further loan from the World Bank to meet the foreign exchange cost. Our capacity to service and repay such fresh borrowings in addition to our existing loans must obviously depend on the resources we are able to raise over the years from retained earnings.

9. If the steel industry of the country in both public and private sectors is to remain healthy and to make its full potential contribution to the security of the country, it is imperative that it be ensured the wherewithal to finance the continuous process of replacement and development essential to maximum production and efficiency.

10. We do not ask for favours at the expense of the consumer or the taxpayer, nor do we expect that prices fixed by Government should reward inefficiency, but we do ask that a more realistic account be taken of the conditions under which the steel industry is compelled to operate in India and, particularly, of the shortages and deficiencies in raw materials, transport and other factors over which it has no control.

11. I regard with dismay Government's growing propensity to brush aside the carefully calculated and reasoned recommendations of the Tariff Commission, which consists of "men of ability and standing who have shown capacity in dealing with problems relating to commerce or industry or in administration"—to quote the relevant section of the Tariff Commission Act, 1951. I do not suggest of course that Government should automatically accept every recommendation of the Commission, but I do urge that their advice should be set aside only in the most exceptional circumstances and for the most convincing reasons. From a speech made by the Minister for Steel to the Committee of the Indian Merchants' Chamber in Bombay, it would seem that Government consider the Tariff Commission and their approach as completely out-dated and that some other method of fixing prices should be evolved. As the only practical alternative I can see would be for the Ministry concerned to determine prices at its sole discretion and thus become the exclusive arbiter of an industry's destinies, one cannot but view with alarm this indication of Government's intention to scrap the long-standing and salutary practice of seeking independent and impartial advice in fixing prices in major controlled industries. In a planned and controlled economy such as ours, it is only by exercising restraint in the use of their enormous economic powers that Government can retain the confidence of the people in the fairness and impartiality of their policies and actions.

12. Before I close, I cannot, in fairness to the Company, leave unanswered the criticism voiced by the Minister for Steel, that the Company's expansion programme was originally estimated to cost Rs. 66 crores but had actually cost Rs. 120 crores. In my statement to the shareholders two years ago, in answer to a similar criticism, I gave the true facts, of which Government should therefore be well aware. The estimated cost of the two million ton programme, as accepted by the World Bank in 1956, was Rs. 95 crores. The actual cost including subsequent additions and modifications was about Rs. 110 crores. Excluding about Rs. 6 crores of expenditure arising from subsequent increases in import duties and manufacturers' escalations, over both of which the Company had obviously no control, and additional purchases of spare parts decided upon for the sake of added safety, the total excess came to about Rs. 9 crores, equivalent to only 10%, over the estimates, a remarkably low figure of excess for a project of such magnitude and complexity. It is somewhat disheartening to find that the Steel Minister should have been provided with such incorrect data despite the fact that correct information was available to Government.

13. The tenor of this Statement may sound out of tune with my opening remarks but its main purpose is to clear the air and set the record straight. Having done so, I can assure Government of the Company's unstinted support and cooperation in the Defence effort. We fully realise the importance of steel production to a country at war. In the grievous and complex tasks ahead, we place ourselves, our staff, our technical and human resources and our long experience of the steel industry at the disposal of Government in the furtherance of the country's total war effort.

Chairman's Statement for the year 1962-63

Bombay, 25th July, 1963

TO THE MEMBERS,

The year under review has been a difficult one for India, overshadowed by the Chinese attack on our Northern Frontiers. While military operations, which ceased abruptly with the Chinese withdrawal in December 1962, left substantially unaffected the country's territorial integrity, the economic aftermath of the invasion has been a serious one. Although viewed in retrospect the limited Chinese attack on India may prove in the long run to have been a blessing in disguise for having swept away dangerous illusions and policies based on them, concerning China's avowed friendship for India, it has placed on us a grievous, and possibly permanent, burden of additional defence expenditure at a time when all our resources were required for economic development. With the realisation of our military unpreparedness against such a powerful and ruthless enemy, the need to strengthen and modernise our defence apparatus at the cost of a much larger part of total available resources, slender as they are, became inescapable.

2. The Finance Act has made only too clear to us all the magnitude of this new burden. While there is, I am sure, none amongst us who would deny the need to provide whatever funds are required to strengthen our defences, much concern and doubts have been expressed in regard to the specific provisions of the Act and particularly in regard to the Super Profits Tax. The matter was so fully argued and discussed both publicly and privately at the time that little purpose would be served by my using this occasion to repeat here what has been so thoroughly ventilated earlier. We can only hope that the Finance Minister who, much to his credit, gave the assurance that he would review this particular measure if it was found in practice to be detrimental to the country's economic growth, will, in fact, do so at a suitable opportunity. It is fortunate that, in our own case, the Super Profits Tax will place no burden on our Company, thanks to the large capital and reserves employed in our business.

3. Coming to our own affairs, shareholders will see from the Directors' Report and the Accounts that the Company made gratifying progress during the year under review. Both output and profits have risen appreciably and the Company has now begun to reap the fruits of its heavy investment in money and effort undertaken over the last seven years.

4. I am particularly happy, that the improved results have made it possible for the Directors to recommend a slightly higher dividend on ordinary shares. The fact that the dividend in the hands of the shareholders is still considerably less than prior to the Expansion Programme is solely due to the change in the tax laws of the country since 1960, but that is a matter entirely beyond our control the burden of which would have been felt even if the Expansion Programme had not been undertaken. In fact, there is no doubt in my mind that had we not grasped the opportunity of doubling the capacity of our plant, the position of the shareholders would be less favourable than it is today and it would progressively deteriorate year by year as the plant got older and more costly to operate.

5. Shareholders will remember that, when the Expansion Programme was first mooted and some of them expressed serious doubts as to the wisdom of spending so much money on expansion, I pointed out that the Company's prosperity and, in fact, its ultimate survival would depend on its continued ability to remain competitive in the changed situation in the Indian Steel Industry as a whole which would emerge from its rapid growth and the creation of a number of large modern plants.

6. Competitiveness, in a controlled industry like ours, means, in essence, the ability to produce steel cheaper, or at least at no higher cost, than the rest of the industry. We could never have achieved this with a plant most of which was built after the first World War and which required an unduly large labour force in relation to its output. In any field of industry, an enterprise that fails to grow and to replace old plant and machinery with new and more efficient equipment must inevitably decline and ultimately die.

7. I am sure that even our most sceptical shareholders are today glad that the Company embarked upon the Modernisation and Expansion Programme (MEP) and the Two Million Ton Programme (TMP) and I have no doubt that the wisdom of this step will become more evident as the years go by. I hope, at the same time, that they will realise that this process is a continuous one and that the Company, so long as it exists, can never afford to sit back and feel content that the modernisation and expansion achieved between 1956 and 1960 will be sufficient for ever after. We must be prepared not only to replace old plant and machines as they wear out and as new and better ones become available, but also to expand further if and when we are given the opportunity to do so on a sound and remunerative basis. Efficiency and low costs nowadays are increasingly linked with large-scale production. Whereas a few years ago, a million ton steel plant and, say, a thousand ton a day blast furnace were considered exceptionally large and efficient, today even a two million ton plant is small by world standards and a two thousand ton blast furnace is by no means amongst the largest built. In this heaviest of all industries particularly, the size of steel plants and of the individual items in them has grown continuously over the years not only in order to make more steel, but because, by the better and more efficient use of materials, power, transport and labour, they are able to produce at lower cost. In addition, technological advances and new processes have increased efficiency and lowered costs.

8. Those, therefore, who intend to remain shareholders of this great Company of ours must, in their own interests, be prepared to take a long term view and allow the Company to accept the additional burdens and responsibilities involved in continued modernisation and, wherever the opportunity occurs, in further expansion. For only by such means can we remain strong, efficient and competitive and can dividends be maintained or improved.

9. An opportunity for further modernisation and expansion may, in fact, come our way sooner than expected. As shareholders will have gathered from recent press reports, Government, in their advance planning of steel-making capacity in the Fourth Plan period, are considering a further expansion of capacity in the Private Sector in addition to that proposed for the Public Sector. We have been asked whether our Company would be interested in a further expansion at Jamshedpur and willing to undertake it during the Fourth Five-Year Plan. This matter is still at an exploratory stage and no decision is likely to be taken for a considerable time. The Management of your Company is at present engaged in a preliminary study of such a project. In the meantime, we have informed Government that we would in principle be willing to play our part in the expansion of the Indian steel industry as a whole provided such an expansion could be financed without undue strain on the Company's resources and would safeguard the interests of the shareholders.

10. From the preliminary studies we have already made, it would seem that a further expansion of something between half a million and a million ingot tons could be undertaken economically within the existing plant area. In considering this matter, we will be guided solely by the technical and economic soundness of the project, the financial stability of the Company, the interests of the country and, by no means last, the interests of the shareholders.

11. The most important obstacle to surmount will be the question of finance. The cost of such a scheme, if for a million tons, would probably exceed Rs. 100 crores, at least half of which would be in foreign exchange. The World Bank, to which we still owe Rs. 34 crores, out of the Rs. 51 crores they lent us for the Two Million Ton Programme (TMP), would obviously be primarily concerned in such a scheme, whether they financed it themselves or not, and we would have to satisfy them that it could be undertaken without affecting our capacity to service their existing loans, let alone any fresh borrowing raised for the new Expansion Project.

12. Shareholders would probably look upon such a proposal from their own point of view and particularly the effect it would be likely to have on their dividends and on the market value of their shares. It is too early for me to give shareholders any indication of how these will be affected by a further programme of expansion. I can, however, assure them on behalf of my colleagues on the Board and myself, that we will recommend a scheme of further expansion only if we are thoroughly satisfied that the project is technically and economically sound and that it can be undertaken on terms wholly fair, and even attractive, to the shareholders.

13. While on this subject. I may refer briefly to Government's plans for the expansion of the industry as a whole. While the present steel-making capacity of the five major plants in India is about six million ingot tons, the Planning Commission have estimated the country's requirements at ten million tons at the end of the Third Plan and eighteen million tons at the end of the Fourth Plan.

14. Because of the long time it takes to expand existing plants and to build new ones and the many and difficult problems involved in correspondingly increasing supplies of raw materials, coal, transport and power to cope with the increased output of steel, it is doubtful that these targets will be reached according to schedule.

15. It is my personal view that the maximum practical target that can be reached at the end of the Fourth Five-Year Plan will not exceed fifteen million tons which itself would be a considerable achievement and in my view adequate. Of the present firm decisions taken, the proposed creation of the Bokaro plant is by far the most important. Some shareholders and others may have been surprised that, as Chairman of the largest producer in the Private Sector, I should have gone out of my way to support publicly the Bokaro project both in India and abroad. I am sure, however, that most people, including our shareholders, will approve of my action. India's economy and the standard of living of our people cannot grow without additional steel and it is clear that the Private Sector, even if permitted to do so, would not be able to undertake on its own a programme of expansion at an average rate exceeding a million tons of new capacity per year.

16. Assuming a capital cost per ton of installed capacity of anything between Rs. 1,500 and Rs. 2,000 per ton, the sums involved are so enormous, as to be clearly beyond the present and foreseeable resources of the Private Sector. It would be both unreasonable and unpatriotic of anyone to place the interests of private enterprise above those of the nation as a whole, and I therefore had no hesitation in publicly supporting the Bokaro project, when it seemed that such support might help in allaying some of the doubts expressed in America in regard to aid for this project. I sincerely hope that the U.S. Government and Congress, who have contributed so generously upto now to India's economic development, will find it possible to give their support to this vital project.

17. Shareholders will also have learnt from press reports that the Government of India were considering the possibility of abolishing wholly, or in part, statutory control over steel prices and distribution which has been in force since 1941. With the increased availability of steel from the five major plants in the country and the gradual narrowing and, in some cases, disappearance of the gap between retention and selling prices, the situation in the country in regard to steel supplies has materially changed, and Government have decided to review the whole question of continued control over the steel industry.

18. The Minister for Steel and Heavy Industries is to be complimented on taking a lead in reviewing Government's approach to the complicated and difficult problem of steel distribution and pricing. It is also gratifying to find that, before coming to a final conclusion on the subject, he decided to seek the views of the industry. For this purpose the Minister called a meeting of the three main producers early in July 1963, at which the whole subject was tentatively explored.

19. In expressing their views and suggestions in Delhi, the representatives of the basic steel industry informed Government that they would welcome decontrol provided that, at the same time, ste.ps were taken to ensure that the transition was a smooth one and that reasonable prices were fixed which would be fair to both the consumer and the producer.

20. The meeting was purely of an exploratory character and no decision was taken. The tentative views expressed by the industry were sympathetically heard, and I am grateful to the Minister, who was good enough to preside over the meeting, for his fair-minded and pragmatic approach to the problem. The Minister asked the representatives of the three main producers to discuss the matter further amongst themselves and to place their considered views before Government as soon as possible.

21. At this early stage it would not be proper for me to express any views on the subject. I can only say that I personally believe that if the steel industry is allowed to conduct its own affairs in future, under a carefully thought-out scheme which will safeguard the public interests, a progressive step will have been taken to the advantage of all concerned and of the country as a whole. I therefore hope that these constructive discussions will fructify.

22. I regret to report that the Special Alloy Steel Project, which the Company has had under consideration for the last three years, has had to be shelved for the time being for two reasons: First, it has been found impossible upto now to interest a foreign collaborator in participating in the project on the condition imposed by Government that the whole of the foreign exchange cost should be wholly provided by the foreign partner and, second, the Government of India have decided that this project should be transferred to the Public Sector. I can only regret this decision and hope it will be possible to revive our project at some time in the future.

23. In last year's Directors' Report and the Chairman's statement a reference was made to Government's request that we should increase the output of our coal mines by about 1.5 million tons of raw coal or 1 million tons of washed coal so as to become self-sufficient in coking coal supplies. The study of this project has taken longer than expected mainly because, owing to the prohibitively high estimates of cost first submitted to us, we had to have the matter re-examined by another firm of consultants whose preliminary techno-economic report has just been received. The estimates contained in this second report are, I am glad to say, substantially lower than in the first. Discussions on the subject have been initiated with the World Bank, who have taken a special interest in the development of the Indian coal industry, and 1 hope that by the time the next annual report is submitted to you, a satisfactory decision will have been taken.

24. l have nothing special to report in regard to the operations of the Company during the current year, of which four months have elapsed at the date of this statement. A further advance in production may be expected during the year, particularly as a result of the commissioning of the Tonnage Oxygen Plant which is to supply oxygen to SMS 3. The erection of this plant will be completed shortly and should be in operation before the end of the year. I must, however, point out once again that in such a complex industry as ours, involving the close co-ordination of many elements and factors beyond our control, continuous operation at hundred percent of capacity is not an easy task. I can assure shareholders, however, that every effort will continue to be made to bring the plant to its full production and efficiency of which over ninety percent was achieved by the end of the year under review.

25. In conclusion, I am sure the shareholders would like to join my colleagues on the Board and myself in thanking our officers, staff and workers whose sustained efforts over the past few years have been largely responsible for the continuous improvement in the performance of the Company.

Chairman's Statement for the year 1963-64

Bombay, 27th July, 1964

TO THE MEMBERS,

As this review comes to you a bare two months after the death of Jawaharlal Nehru, it is fitting that it should begin with a tribute to his memory and an expression of our grief at his passing. In every age, a few men are born destined to shape the course of history and it was fortunate for our country that at one of the most critical turning points of its one of his heroic stature was there to lead it.

2. After Gandhiji led us to freedom, Jawaharlal undertook the prodigious task of changing the outlook, beliefs and way of life of hundreds of millions of people steeped in ignorance, poverty and despair; giving them faith in themselves and showing them that with education, hard work, modern ideas and methods and the application of science and industry, they could build a new and better life for themselves and their children. Many years must still pass before Jawaharlal Nehru's dream of a modern industrialised India comes true, but he lived to see the success of the greatest and boldest experiment in parliamentary democracy the world has ever known. If through all the emergencies and crises, which it had to face and surmount over these seventeen years, India has clung so tenaciously to the democratic way of life and remains today a nation of free people, we owe it mainly to him.

3. The Steel Works and the city of Jamshedpur held a special place in the thoughts of Jawaharlal Nehru for, long before other steel plants were built in the country, they were to him the symbol and the promise of a new India. In 1958, on the occasion of our Golden Jubilee, while dedicating the Jubilee Park, which the Company presented to the citizens of Jamshedpur, he said "I have come here because this great Steel Works and the city of Jamshedpur have become symbolic of the growth of Indian industry. ... but the biggest reason of all is to pay homage to the memory of Jamsetji Tata." It is appropriate to recall these words today since this year marks the 125th anniversary of the birth of Jamsetji Tata and the 60th anniversary of his death. Referring to Jamsetji's courage and vision, he said "It is right that we should honour his memory and remember him as one of the big founders of modern India." The great heart that paid this gracious tribute is now stilled, but, as his biographer has said, "India will remember Jawaharlal as the man who saw the vision big and tried, with all his faith and will, to make it great."

4. As we mourn the passing of Jawaharlal, our thoughts, sympathy and good wishes turn to the dedicated man who has taken on the heavy burden of leading the country. The unanimous choice of Lal Bahadur Shastri as Prime Minister and the smooth transition to the new regime have given proof of the maturity and soundness of our parliamentary democracy. I am sure that shareholders will join me in assuring Prime Minister Shastri of the full support and co-operation of the Company in whatever way it may be called upon to help in the further development of India's steel industry.

THE YEAR'S RESULTS

5. The Company made satisfactory progress during the year under review and reached the production target of 1.5 million tons of finished steel while the output of steel ingots fell short of the 2 million ton target by only 5%.

6. On the financial side, however, the results of the year's operations were somewhat disappointing. Although the profit before taxes was nearly Rs. 2 crores higher than in the previous year, much of the excess was due to the fortuitous addition to revenues of Rs. 85 lakhs written back from excess provisions made in previous years. Discounting this item, the profit was only marginally higher than in the previous year in spite of the substantial increase in sales and the ratio of profit before taxes to sales was 14.2% as against 15.4% in the previous year. The slight deterioration in profit per ton was due, as stated in the Directors' Report, to a rise in costs uncompensated by a corresponding increase in retention prices. Increases in prices were sanctioned by Government only from March 1964, although the increases in costs beyond the Company's control which such escalation in prices is intended to cover had taken place much earlier. The delay caused the Company the loss of a substantial amount of revenue and therefore of profit during the year. Furthermore, as stated in the Directors' Report, the price increases from March 1964 in categories of steel over which price control has been retained after partial decontrol, were substantially less than expected on the basis of an announcement made by the Minister of Steel in that month.

7. Shareholders will have noticed the six-fold increase in taxes this year. Whereas in the previous year the bulk of the profit was absorbed, for tax purposes, by arrears of development rebate, there was no similar set-off this year as all such arrears have been fully made up. The provision for taxes would, in fact, have been Rs. 2.70 crores larger but for the higher depreciation allowed under the reducing balance method of calculation adopted by the tax authorities than under the straight line method followed by us. I am sure, you will approve of the Directors' decision to set aside this saving in tax to a deferred taxation reserve for the reasons explained in the Directors' Report.

8. As against the increase of Rs. 6.65 crores in the provisions for taxes, including deferred taxation, as compared to last year, the allocation to the development rebate reserve is as much as Rs. 7.70 crores less than in the previous year. Taking into account all the variations between the two years' allocations and provisions and last year's transfers of Rs. 3.84 crores from reserves, the final balance available for disposal was larger this year by Rs. 3.17 crores.

9. As you are aware, our general reserves were heavily depleted by transfers to profit during the last few years to compensate for the exceptionally large amounts set aside for special reasons towards additional depreciation and arrears of development rebate. In the interests of the shareholders, it is necessary that we should build up these general reserves again whenever possible after paying reasonable dividends. Your Directors have, therefore, set aside Rs. 2.75 crores to General Reserve No. 1 this year and at the same time were able to recommend an increase of Re. 1 in the dividend on Ordinary shares.

IMPACT OF INFLATION

10. A matter of much concern to us and to all engaged in industry has been the continuous increase in costs, year after year, not only in steel but in almost every single product made or grown in India. Although the accelerating rise in the cost of living index during the last year has been principally due to soaring food prices, themselves due to insufficient production combined with a greatly increased purchasing power, the cost of all industrial products, including those which, like steel, do not depend on agricultural raw materials, has continued to rise relentlessly with no sign of abatement in sight.

11. Steel provides a striking example of the marked deterioration in the country's cost/price structure. Whereas until 1955 Indian steel was amongst the cheapest in the world, it has become one of the costliest although the basic elements which make up the total manufacturing costs have not materially changed in relation to those of other countries. At the end of 1963, the average price of the common categories of steel in India was more than two and a quarter times the 1948 price, one of the largest single elements of increase being in respect of excise duty which increased no less than fifteen times from Rs. 5 to Rs. 75 per ton. Actually the full incidence of excise duties and other taxes on the final price of steel is much greater than that as practically every item which goes into the making of steel, including fuel, power, raw materials and stores, is itself subject at one or more stages of production to its own excise duties and other taxes. In addition to the growing burden of direct taxes of one sort or another, freight rates charged by the Indian Railways are today four to five times what they were fifteen years ago.

12. The damage caused by rising costs to the economy and to the country's long-term plans of development cannot be exaggerated. Not only does the resulting decline in the purchasing power of the rupee cause severe hardship to every family in the country, but increases in costs have a number of other dire consequences. For instance, they have already rendered uncompetitive in world markets almost every exportable Indian product other than tea and jute, thus severely restricting our earnings in foreign exchange; they have inflated expenditure under the country's development plans and this, in turn, has necessitated, apart from further additions to our already crushing burden of taxation, a further rise in deficit financing, aggravating inflationary pressures and leading to still higher costs and prices, a vicious circle indeed.

13. While appreciating the magnitude and complexity of the problems involved and the grievous burden of additional Defence expenditure since last year, I venture to suggest that the deterioration in our price structure is largely due to our forcing the pace of economic development beyond the country's capacity in physical and financial resources. The inflationary effect of spending too much too quickly has been aggravated in our case by the fact that so much of the total expenditure has been incurred on unproductive civil administration and on costly long-term projects which can add to the national income only after long gestation periods and which, even when completed, produce little for the consumer.

14. Unfortunately, there seems to be no recognition as yet of the need for a reappraisal of resources and priorities in our planning. From the tentative figures recently announced for the Fourth Plan period it would seem that the remedies for our present ills are thought to lie in still larger plans involving still heavier doses of taxation, deficit financing and foreign borrowings.

SPECIAL ADVANCE

15. You will, no doubt, expect me to make some reference in this Statement to the recent amendment to the Companies Act empowering Government unilaterally to convert into shares loans advanced by them to joint stock companies, and to the discussions which we and the Indian Iron and Steel Company have been having with Government in regard to the repayment of our respective special advances.

16. We have viewed the passing of the above amendment with deep concern, not only because of its potentially grave impact on the Company and its shareholders, but also because of the arbitrary and unfair nature of the measure and of its disregard of past undertakings in so far as the two Steel Companies are concerned. The scheme for the special advances of Rs. 10 crores made by Government to each of the two main producers towards the cost of their modernization and expansion programmes was formulated in consultation with a World Bank Mission in 1952 and, as memories on the subject seem to be short, I feel it necessary to review once again the genesis and history of these advances.

17. From the end of the war until the mid-fifties, the retention prices allowed by Government to the steel producers were fixed at levels far below import prices, on the unrealistic basis of a gross return of 8% on block, from which had to be provided profit sharing bonus, Managing Agents' commission and taxes, leaving only about 3½% for dividends and reserves. This price scheme had disastrous consequences for it left virtually nothing in the hands of the industry for rehabilitation and modernisation, leave alone expansion, and made it impossible to attract any fresh capital. As a result, the country had to spend immense amounts in foreign exchange every year on imported steel, which could have been saved if Government had followed a more realistic price policy.

18. When Government finally accepted the need for modernising and expanding the country's steel industry, we urged that our prices should be raised by Rs. 100 per ton which we undertook to apply exclusively, after taxes, to the modernisation and expansion of the plant. Even with this increase, our average retention price would at that time have been about half the price of imported steel. This modest and perfectly sound proposal was turned down by Government who, instead, decided to increase selling prices without raising retention prices. The funds generated by this increase to the consumer, which would normally and legitimately have accrued to the producers, was taken to an equalisation fund, from which the special advances were made to the two Companies. As I pointed out at that time, this amounted to lending us our own money. This was, in fact, recognised, at least by implication, in the terms of the special advances which made it clear that they were no loans in the ordinary sense, for the advances were to have no fixed maturity date and were to be repaid with interest only if and when a special element was added to the normal retention prices specifically for that purpose. In their 1962 inquiry into the steel industry, the Tariff Commission were specifically asked by Government to recommend a special element in the retention prices towards the future repayment of the advances and interest thereon from July 1958. The Commission recommended Rs. 8 per ton. Government, for reasons of their own which I have not been able to understand to this day, changed their mind and announced in Parliament and elsewhere that they were considering other means of recovering these advances, including their conversion into shares. It was presumably in pursuit of this objective that the extra-ordinary amendment to the Companies Act mentioned earlier was passed in December 1963. Whether the real purpose was actually ton convert the advances into shares or merely to induce the Companies, under the threat of such conversion, to repay them in abrogation of the terms of the agreements between the Government and the Companies, has never been made clear to us. We naturally made strong representations to Government with whom, I am glad to say, discussions have been held and are still continuing towards what I hope will be an equitable and mutually satisfactory solution.

19. While not relevant to this particular issue, I may mention that we have protested with equal earnestness against another amendment of the Companies Act recently introduced by Government, which is in breach of the spirit if not the letter of the Constitution. Under this amendment, the voting rights attached to shares of joint stock companies held in trust are to pass to a Public Trustee, who incidentally, has still to be appointed by Government. This measure, which has at one stroke disenfranchised every trustee shareholder in the country, except in the case of trusts of less than Rs. 5 lakhs, is an extraordinary piece of legislation which illustrates the present tendency to disregard the rights of individual citizens and a growing readiness to rely on compulsion in enforcing Government's will on the people. Although it is now part of the law of the land, it has not yet been put into actual operation. As the appointment of the Public Trustee has still to be notified, I hope, even at this late stage, that some convention or "modus Vivendi" will be established whereby, in practice, the voting rights of trustee shareholders will be left undisturbed except when they are abused or where the Public Trustee has grounds to apprehend the misuse of such rights by the trustees.

FURTHER EXPANSION

20. In my Statement last year, I mentioned the possibility that our Company might be called upon to undertake a further large-scale expansion of capacity at Jamshedpur during the Fourth Five-Year Plan. Government have, indeed, requested us to undertake such expansion and further progress has been made in the examination of the project. The scheme, as it has now emerged from such a study and from discussions with Government, contemplates the installation of the necessary facilities for making in the first instance, an additional million tons of ingot steel to be rolled into sheets and strips in a continuous or semi-continuous strip mill.

21. We expect to appoint a firm of consulting engineers shortly to prepare a detailed project report which should be received in about eight months after their appointment. While only preliminary estimates have been made, the indications are that the cost of this further expansion would be of the order of Rs. 170 crores of which probably a little more than half would be in foreign exchange.

22. As I hinted last year, the most difficult problem will be that of finance, particularly as this project will be super-imposed on a programme already in hand for expanding and modernising our ore mines, building a battery of coke ovens, adding some equipment to SMS 3 and doing a few other things, at a cost of about Rs. 25 crores and on the project for increasing the output of our Jharia Collieries by a million tons of washed coal at an estimated cost of about Rs. 30 crores.

23. There is no need for alarm at the prospect of such large commitments. The recently completed Two Million Ton Programme and the results before you in the form of increased dividends and reserves are an indication of the benefits and added strength which accrue to the Company and its shareholders from expansion resulting in lower costs, better utilisation of total assets and increased productivity. At this early stage, I can only repeat that your Directors will sanction a further expansion only if they are thoroughly satisfied that the project is technically and economically sound and that it can be undertaken on terms wholly fair to the shareholders.

COMMUNAL DISTURBANCES

24. The Directors' Report contains a brief factual reference to the tragic events which overtook Jamshedpur in March this year and which, in addition to the loss of valuable life, brought great misery and hardship to thousands of innocent men, women and children. This explosion of communal violence was all the more shocking for having occurred at Jamshedpur which, for over a half century, had established an exemplary record of peace and harmony, maintained unsullied even in the darkest days of 1947.

25. It is poor consolation to know that the troubles were least pronounced in the Steel Plant and in the areas inhabited by the Steel Company's employees. This was to be expected as a large proportion of our present employees consists of second and third generation citizens of all communities who were born in Jamshedpur, went to school together and form a mature and stable cosmopolitan community. These elements conducive to happy relations between communities are lacking among the newer industries of Jamshedpur, most of whose employees have come from outside the city and, being younger, are more easily swayed by troublemakers.

26. The lesson to be learnt from this tragic episode is the need for continuous vigilance and sustained action in the promotion and maintenance of good relations amongst the various communities as well as for a strong civil administration endowed with the necessary authority and the will to take firm and instant action in emergencies. Although the local Government authorities, including the Police, no doubt did their best to bring the situation under control, they were at first overwhelmed by the suddenness and magnitude of the events which offered evidence of having been deliberately planned.

27. One of the possible causes for the situation having gone out of hand for a while is the fact that Jamshedpur, although the second largest city in the State of Bihar and perhaps the most vital industrial centre in the whole country, is still administratively treated as a sub-division of a district, the headquarters of which are in a small neighbouring town. As a result, the law enforcement machinery is inadequate for dealing with serious emergencies. We have, therefore, urged that early consideration be given to the possibility of upgrading Jamshedpur to an administrative status commensurate with its importance to the State and to the country and with the magnitude of the problems and the task of administering it.

28. As stated in the Directors' Report, the Company, along with sister concerns at Jamshedpur, took quick and effective steps to provide relief and rehabilitation to the families of the affected communities. Although not relevant to this review, I think, shareholders may be interested to know that recognising the similar misery and hardship suffered by thousands of refugee families from across the country's borders, the Steel Company, along with Telco and the Tata Trusts, are planning to undertake a programme of relief at one or more refugee camps in Bihar.

SIR JEHANGIR GHANDY

29. It is customary for me to end my annual statement to the shareholders with an expression of thanks to the officers, supervisory staff and workers at Jamshedpur and elsewhere for their contribution during the year to the further progress made by the Company. Now that I am no longer inhibited by his membership of the Managing Agents Firm, I should like to pay a special tribute to my old friend and colleague, Sir Jehangir Ghandy, who retired as Director-in-Charge of the Steel Company at the end of the year under review. "Joe" Ghandy, as he has always been known to those who have worked with him, joined the Steel Company as a trainee in 1917, nearly 47 years ago, and left for the U.S.A. eighteen months later for advanced post-Graduate studies. He returned to Jamshedpur in 1921, and has been there ever since. From the start, he showed such exceptional ability and drive that it took him only nine years to be put in charge of the whole plant as General Superintendent and another eight years to become the first, as well as the youngest, Indian General Manager. Since 1946, he was in charge of the Company's affairs at Jamshedpur, first as Resident Director of the Managing Agents, and then as Director-in-Charge. To him goes a major share of the credit for the progress and growth of the Company over the last thirty years.

30. Sir Jehangir Ghandy achieved prominence and countrywide recognition in various fields of national endeavour and was closely associated with many of the country's leading technical institutions, but it is as an outstanding Engineer-Administrator and for his unparalleled services to this Company and to the Indian steel industry as a whole that he will be remembered, and for which we all owe him a deep debt of gratitude.

31. Although no longer concerned with the day-to-day conduct of the Company's affairs, Sir Jehangir, happily continues his connection with the Company as a member of its Board, as a Director of Tata Sons and as Chairman of three important enterprises associated with the Steel Company at Jamshedpur. I am sure shareholders will wish to join me in thanking him for all he has done for the Company over these four decades and more, and in wishing him many years of good health and happiness.

32. The work and responsibilities of Sir Jehangir at Jamshedpur are now shared by two Resident Directors of the Managing Agents, Mr. S.K. Nanavati, in charge of Operations, and Mr. R.S. Pande, in charge of Administration. Mr. Nanavati retired as General Manager of the Company in September last year on his joining the Board of the Managing Agents' Firm after a brilliant career with the Steel Company covering a period of over 29 years, and was succeeded as General Manager by Mr. G. Kumar.

33. Mr. Pande had a distinguished record of service with Government prior to joining the Steel Company in 1958 as Director of Personnel. He was appointed Agent in April 1959 and retired from the Company's service on 1st April this year when he joined the Board of Tata Industries.

34. The Company's operations are safe in the hands of this strong and experienced team backed by a group of able and devoted officers.

Chairman's Statement for the year 1964-65

Bombay, 23rd July, 1965

TO THE MEMBERS

I am aware that rumours in the Stock Exchange had led some shareholders to expect a higher dividend than last year. I am sure that on reading the Directors' Report and studying the annexed accounts, shareholders will have realised that the Stock Exchange expectations were unjustified and based on incorrect estimates of the disposable profits.

2. Although good progress was made by your Company during the year under review and the turnover and operating profits were appreciably larger than last year, higher depreciation, higher taxation and an exceptional provision for interest in respect of the Special Advance of Rs. 10 crores from Government, absorbed substantially more than the excess profit made over the previous year. In the net result the amount available for appropriations was over Rs. 3 crores less than last year and there were therefore no grounds on which the Directors could have justified a higher dividend.

3. As some shareholders may question the need for appropriating Rs. 3 crores to deferred taxation in addition to the Rs. 2.70 crores provided last year, I may remind them that the sole purpose of this reserve is to insulate shareholders from the burden of additional taxation which will become progressively heavier in the coming years as a result of the growing gap which will arise from 1966 onwards between the depreciation allowed by the Income Tax authorities on the written down value basis adopted by them and the larger amount we provide in our accounts on the straight line method adopted by us. We calculate that during the next few years we shall have to pay about Rs. 11 crores more in taxes than would be payable if such taxes were based only on the profits shown in our annual profit and loss accounts for those years. As against the Rs. 11 crores required, we have provided upto now only Rs. 5.70 crores including this year's allocation of Rs. 3 crores.

4. As stated in the Directors' Report, out of the sum of Rs. 1.75 crores for interest on the Special Advance provided in the accounts before you, Rs. 49 lakhs represent the interest payable in respect of the year 1964-65, and the balance for the period 1961-62 to 1963-64. As at the date of this report the exact terms of repayment of the Special Advance and interest thereon have not been finalised with Government. But as a settlement is now likely in the very near future and as it will include interest from at least 1st April 1961, your Directors have considered it necessary to provide for interest upto and including the year ending 1st March 1965.

EXPANSION

5. In my statement last year, I mentioned the possibility of a further large scale expansion of the Jamshedpur plant being included in the Fourth Five-Year Plan. In response to Government's request, we submitted tentative proposals for a million ton expansion to be rolled into flat rolled products. Subsequently however, Government felt that the excess capacity built into a Strip Mill of the width contemplated would make the capital cost per ton of our project unduly high and that it might therefore be postponed to a time when it could be undertaken to its full ultimate capacity of about two million tons. At that stage, therefore, it seemed probable that a further expansion at Jamshedpur would be postponed to the Fifth Five-Year Plan.

6. Recently. However, as the planning of the steel targets in the Fourth Five-Year Plan advanced to its final stages, the Planning Commission and the Steel Ministry seem to have come to the conclusion that it would be necessary to undertake the expansion of the two Private Sector plants during the Fourth Plan period in addition to that of the three existing Government plants and the creation of two new steel plants in the Public Sector. As a consequence of this, we have recently been asked by Government to consider an expansion of about Two Million ingot tonnes in the Fourth Plan period although full production would not be achieved until the Fifth Plan period.

7. A project for doubling once again the capacity of the Jamshedpur plant obviously poses technical, financial and other problems of tremendous magnitude and complexity, the solution of which is still fraught with many uncertainties.

8. Notwithstanding the magnitude of the commitments that would be involved in such an undertaking, your Directors tentatively took the view that, provided the problem of finance could be solved on a basis which would ensure the continued financial stability of the Company and the maintenance of existing dividends on the present capital and offer prospects of a fair reward to shareholders, and provided further that all requirements of raw materials, rail transport and power could be assured, the Company should not reject such an opportunity of bringing the plant up to its ultimate maximum capacity and efficiency and of serving the needs of the country.

9. A further expansion upto a total capacity of 3.8 million tonnes to 4 million tonnes of ingot steel per annum, based on the installation of new plant and equipment of the most modern and productive kind and permitting the shutting down of old and obsolete units, would ensure to the Company a degree of efficiency, productivity and earning power which would obviously be of the greatest long term advantage to shareholders.

10. We have, therefore, in recent discussions informed Government that provided the scheme can be made viable financially, technically and economically and subject to the approval of the shareholders whose concurrence in regard to the large additional borrowings would, in any case, be required under the law, the Company would be prepared to consider such an expansion programme.

11. I must make it clear that discussions with Government upto now have been entirely on an informal basis without any firm commitment on either side. The only decision made and commitment undertaken, with the approval of the Government of India, is to obtain from a firm of independent consulting engineers a preliminary project report or feasibility study on which will be based future consideration of the project. The whole project, if it fructifies, will depend on the financial support and approval of the World Bank who also will want to satisfy themselves in regard to its viability, availability of rupee finance, market demand and other factors. Shareholders will therefore appreciate that the picture is still somewhat nebulous and that many months must pass before firm conclusions can he reached. In any case, I do not expect that we shall be in a position to place concrete proposals before the shareholders for another year.

12. While on the subject of steel expansion in the Fourth Plan, and irrespective of whether the expansion of our own plant is ultimately included in it, I should like once again to sound a note of caution, however unpopular I know it to be in some circles. In 1959, when the steel industry was consulted by the Planning Commission in regard to the Third Plan targets, I questioned the need, in the context of our over-all economic development, for placing so much emphasis on, and allocating such a large proportion of our resources to, the development of the basic steel industry. I pointed out at the time that in other countries the ratio of steel consumed to the total production of manufactured goods was much lower than planned for our country; that while it was essential to meet in full the needs of manufacturing industries consuming steel, and particularly costly special steels, there was no justification for committing so much of our scarce resources in money and foreign exchange to ensure complete self-sufficiency in steels used for non-essential purposes; that it was wasteful to invest vast sums in steel capacity without making sure of a simultaneous expansion of raw materials, transport, power, technical and managerial skills, without which partly the new capacity would remain idle or take an unduly long time to reach full utilisation. I therefore advocated a curtailment of the steel target. My views were not accepted.

13. As it turned out, the expansion of steel capacity undertaken in the Third Plan period suffered greatly for a time from delays, shortages and deficiencies in raw materials and transport, and the bulk of the special steels required by steel processing industries had to be imported. Right now ten years after beginning the manufacture of commercial vehicles, a company like Telco has still to import almost every kilo of special steel incorporated in its products, and today, because of the foreign exchange crisis, those imports have been curtailed and Telco, along with many other industries depending on imported raw materials, is compelled to curtail production. While, admittedly, a large expansion of the special steel industry is now included in the Fourth Plan, shortages in these essential materials will continue to prevail for many years to come and the country will continue to suffer heavy loss in the unnecessary expenditure of foreign exchange on the one hand, and recurring set-backs in production on the other.

14. In regard to ordinary carbon steels, the belief apparently continues to prevail that serious consequences would follow from the slightest gap between supply and demand for ordinary steels, and we are planning to spend over Rs. 1,000 crores during the next Plan period on raising steelmaking capacity to about 16½ million tonnes. In fact, production in excess of domestic demand is proposed with the intention of exporting the surplus. With great respect, this does not make sound economic sense to me.

15. The steel industry is the most capital intensive of all engineering industries and the one which provides for about the lowest employment potential. For every rupee we spend in creating new steel capacity, we create products worth only half a rupee per year, whereas the ratio is at least 1:1 in more advanced industries manufacturing products made of iron and steel, while their employment potential is many times higher. As regards exports, there is already a large excess steelmaking capacity in most steel producing countries and exports from India can only be made at a heavy loss.

16. Such heavy sacrifices on achieving total self-sufficiency or even a surplus in ordinary steels would be worthwhile if they were essential to our industrial and general economic growth, as special steels in fact are, but all steel is not consumed for essential purposes. In a developing country like ours where shortages and imbalances prevail throughout our economy and will continue for many years, is it reasonable to give a higher priority to steel for non-essential purposes than to fertilisers, road transport, electric power, education, medical care and other purposes in all of which there will be persisting shortages even after the Fourth Plan? Surely our efforts and sadly limited resources should first be concentrated on essential needs and not on projects likely to perpetuate and aggravate existing imbalances.

17. While there is still time, I would most earnestly urge some rethinking in the planning of steel expansion in the Fourth and Fifth Plan periods based on a rigorous assessment of the relative essentiality of demand as between steel and other products in short supply. I have no doubt in my own mind that a postponement of a part of the Fourth Plan expansion to a later Plan and a resulting saving of the order of Rs. 200 crores, half of it in foreign exchange, could be achieved without any adverse effect whatever on the rate of our economic growth. Such rethinking should apply not only to steel but to other projects. The same objective could be attained by making the Fourth Plan a Seven Year instead of a Five Year one with the minimum of expenditure incurred in the first two years. This would not only release the pressure on resources but also give time for consolidation and the full digestion of previous projects.

18. In closing, I should like, on behalf of the Board and the shareholders, to thank all our staff and workers at Jamshedpur and elsewhere for their good work during the year which contributed so materially to the improved operating results.

Chairman's Statement for the year 1965-66

Bombay, 30th June, 1966

TO THE MEMBERS,

The year under review has been a tragic and eventful one for India. The failure of the monsoon, on which the economic health of the nation still so largely depends, greatly aggravated the serious inflation already existing in the country. Although actual famine was avoided except in relatively small and isolated areas, thanks largely to the generous assistance of the U.S. and other countries, there is no doubt that grievous suffering and hardship was caused to millions of our people.

2. The war with Pakistan, though fortunately shortlived, intensified further the strain on our economy by disrupting normal production and trade in large parts of the country, and by imposing a heavy additional burden of defence expenditure which is likely to be of a continuing nature.

3. During these troubled and anxious days, Lal Bahadur Shastri led the country with courage and firmness. With his life-long dedication to peace and non-violence, the war must have been a grievous blow to him and it is in the fitness of things that the last days of his life were devoted to a successful effort to restore better relations between our two countries. In Prime Minister Shastri India lost an able and trusted leader whose whole life was dedicated to the service and welfare of the people.

4. In the wake of this tragic loss, we may consider ourselves fortunate that the leadership of the country has passed into the hands of Indira Gandhi. Quite apart from the experience and wisdom she acquired in her long and close association with her illustrious father, our new Prime Minister, in the short period for which she has held office, has shown a degree of courage and decisiveness and a fresh approach which augur well for the future. I cannot imagine a heavier and more onerous task than that of the Prime Minister of India. Indira Gandhi deserves all the sympathy and support we can give her.

5. The trials and tribulations inflicted on our unfortunate country did not end with the close of the year. The impact of the monsoon's failure and of the war with Pakistan so aggravated the already serious economic situation caused by a decade of unsound economic and financial management, that by the beginning of the current financial year the crisis reached the point of no return.

DEVALUATION

6. Whether drastic treatment in the shape of the devaluation of the rupee was the best or only possible means of saving the patient from total collapse, is a question which I shall not attempt to argue here. One cannot but agree with the two basic objectives of devaluation, which are to encourage exports and discourage imports in a country suffering from a seemingly intractable adverse balance of payments. The question, however, which must exercise the minds of all of us, is whether in this case the bitter medicine which the patient was given will in fact bring him back to health. It is perfectly clear that unless in the next two or three years we increase substantially our export earnings in foreign exchange, while reducing or at least stabilising our imports, and at the same time effectively control inflation and thus maintain prices at a reasonable level, the heavy sacrifice involved in the devaluation of our currency will have been in vain and we shall find ourselves in the same or a worse situation than before.

7. The plunge having been taken, all thought and effort must now be devoted to the means of obtaining the maximum possible gains from devaluation, while minimising its unavoidable penalties. This is a task which primarily Government must shoulder, but both sectors of industry and commerce have also a role to play to which I will briefly refer later.

ECONOMIC POLICIES

8. I have no new or startling suggestions to offer in regard to the post-devaluation management of our economy. The main policies which Government should henceforth follow are clear to any thinking person not blinded by dogma or prejudice and it is heartening to find today in Government circles in Delhi and elsewhere, evidence of a new awareness of the true nature and causes of our failures and a new approach to our problems. I will only venture briefly to emphasize the main objectives and policies to be pursued as I see them.

9. First and foremost, the price line must be held, particularly in regard to food, clothing, fuel and other essentials. While no doubt everyone agrees on the imperative nature of this objective, it is, I fear, not yet sufficiently recognised that, short of total rationing and draconian price control, possible only under a totalitarian form of Government, the only effective means of preventing prices from rising must lie on the one hand in limiting the pressures of purchasing power through avoidance of non-essential expenditure and deficit financing, and on the other in producing enough goods to meet the essential demands of the people. Rationing, price controls, Government shops or department stores, public exhortations and the like can only supplement the basic requirement of increased supplies and reduced demands on our resources.

10. Fortunately the need to expand to the maximum production of food and agricultural raw materials seems now to be universally accepted and Government, both at the Centre and in the States, are concentrating their efforts on short and long term measures calculated to promote agricultural production. There is unfortunately no sign as yet, however, of a willingness to reconsider the policy of rigid limitation on land holding which is a major factor responsible for the stagnation of Indian agriculture.

11. In the field of industry, thanks to the generous assistance of our friends abroad, it would seem that for the next year or so the shortage of raw materials, components and spares, which was the principal cause of our dwindling industrial production, will be eliminated and existing installed capacity will be used effectively. I must, however, sound a note of warning against any belief that the massive non-project aid to be extended to us by the World Bank and members of the "Aid India" consortium, can be anything more than temporary pump priming. The vast sums of foreign money loaned to us for this purpose, while temporarily boosting our industrial production, will add to our already crushing burden of foreign debt. I would strongly urge, therefore, however unpopular that view may be to some, that such non-project aid should be kept to the minimum required to boost industrial output, mainly of products that are essential to the country's needs, that are exported or exportable and that will provide import substitutes. Furthermore, it is, to my mind, essential to ultimate success in achieving a balanced foreign trade account that every possible raw material, intermediate component or spare part required by our growing industries be made in India as quickly as possible. This requires that in utilising both project and non-project aid, priority be given to the production of such goods. In steel, for instance, if during the last ten years our planners and Government had, as we urged them to, laid less emphasis on the production of ordinary carbon steels and more on special steels required by the engineering industries, large amounts of precious foreign exchange would have been saved. There must be no further reckless licensing, as in the past, of non-essential projects requiring raw materials and components production of which neither existed nor was planned.

12. The concept of planning itself must change fundamentally. All these years our planners have followed the practice of first determining the magnitude of the investment required over a five-year period to produce the volume of goods and services which, in their wisdom, they considered necessary and then looked for possible sources of funds. Furthermore, not only was no margin provided for possible mistakes, delays and unforeseen setbacks, but also no allowance made for the dwindling purchasing power of the rupee during the period of the Plan. If available resources were found inadequate, the Plan was not trimmed but a resources gap was hopefully accepted as a necessary evil. If any individual prepared his family budget in such a manner he would soon land in a bankruptcy court and possibly in jail.

13. While no one disputes the almost unlimited needs of our people, it should be clear by now that this type of extravagant and unrealistic planning has not only failed to provide the people of India with improved living standards, but by encouraging infla tion, has given them virtually nothing in return for their sacrifices and in the case of the middle classes, which form the backbone and strength of any nation, has actually reduced their standards of living.

14. Our planning must change therefore to one based on resources and not on targets. Furthermore, some of the available resources must be left, in the form of investible savings, in the hands of the investor. What has happened up to now is that not only have total resources, including crippling taxes, been inadequate to finance excessively large plans and have had to be supplemented by lethal doses of deficit financing, but the corporate sector and the investor have been starved of the finance required to create, operate and expand industries.

15. Finally, there is an almost unanswerable case for a review of the fiscal policies which have for the last four years crippled the private sector, dried up the sources of corporate and private finance for industry, deterred foreign investment, encouraged black markets, and generally smothered the growth of the economy. Unrealistic and wasteful planning, excessive bureaucratic controls and crippling taxation have been the three principal factors responsible for our present economic plight. Of the three, the last two have been the most damaging to the private sector. The failure of these policies is today so evident that surely the time has come for a fundamental reappraisal of our economic thinking. Having shown courage and realism in deciding on such an unpopular measure as devaluation, let us hope that our Prime Minister and her colleagues will show equal boldness and wisdom in setting a new economic course in regard to controls and taxation. The risks are small in comparison to the rewards which I am convinced the freeing of the economy from unnecessary controls, and a reduction in taxation would bring about. The example before us of the result of such policies in most of the countries of the West is there for all but the most obstinately blind to see.

16. In my remarks about the general economic situation I have referred up to now only to the role of Government in reviving the economy. The business community in general and the private sector of industry in particular have also an important role to play. It will be up to them to take full advantage of liberalised maintenance imports to increase production as rapidly as possible and to decrease or control their costs. In those industries not subject to price controls, they will have a heavy responsibility in holding prices down to the pre-devaluation levels or as near to them as possible. Newspaper advertisements by a large number of companies, announcing their decision not to increase prices, provide an encouraging sign of a sense of responsibility and patriotism amongst an important sector of industry. I hope that others will follow and that in their treatment of individual industries or companies Government will take into account their behaviour at this time of national crisis.

IMPACT OF DEVALUATION ON COMPANY

17. Coming to our own affairs, shareholders will no doubt want to know what the impact of devaluation is or will be on our Company. While it is too early to assess the full effect of devaluation over a period of years, the position is that our existing foreign borrowings, have been increased in terms of rupees by about Rs. 13 crores including interest charges. Similarly, in respect of their foreign exchange component, the cost of projects already in train or contemplated will rise by another Rs. 9 crores, including interest over the expected period of repayment. In addition, the cost of imported equipment required for normal renewals and replacements over the next five years will go up by about Rs. 8 crores. Finally, our maintenance imports of certain raw materials and spares will cost us about Rs. 1.75 crores more per year. The total of these cost increases will be of the order of Rs. 22 crores over the next five years, involving an average annual increase of Rs. 4.5 crores or about Rs. 30 per tonne of finished steel. These figures ignore any increase in local costs resulting from devaluation.

18. The increase in the rupee value of our outstanding foreign loans previously taken under Government sponsorship or approval for the purpose of financing imported plant and other assets raises for us and for others similarly situated an important and difficult problem. It is clear that the real effect of devaluation in such cases has been to raise the capital cost of these assets. It is unthinkable therefore that such increase should be treated as a foreign exchange loss to be written off by the companies concerned from revenues or reserves. The only fair and realistic way of dealing with such increases in outstanding foreign loans clearly identified with physical assets is to increase in the balance sheet the rupee value of such assets by corresponding amounts. Depreciation should naturally be allowed for tax purposes on such increased valuation. We are urging the Government of India to accept this solution.

STEEL PRICES

19. As regards steel prices I regret to say that our repeated representations over the last two years for increases to compensate for increases in costs, totally beyond the control of the industry and in fact mostly due to Government action in one form or another, have been ignored up to now. With the heavy burden of capital expenditure ahead of us during the next five years, the absence of such a compensatory price increase would jeopardise the Company's capacity to finance such expenditure, to repay its outstanding debts and to provide a part of the resources required for future growth.

20. To my mind, there is one obvious solution to the problem which would satisfy both the legitimate needs of the industry and the need to keep steel prices to consumers from rising and which I would urge Government to adopt. Over the years, Government have imposed on the steel consumer a growing burden of excise duties which today have reached the unconscionably large total of Rs. 150 per tonne. Taking into account the extra revenues Government will henceforth derive from import duties on goods, the rupee value of which has been enhanced as a result of devaluation, and from the export duties introduced on tea, jute and other products, Government could well balance any increases in steel prices to the producers by a corresponding reduction in excise duties on steel, thus ensuring the maintenance of prices to the consumer.

CONTROLS

21. In March 1964 Government announced the decontrol, in respect of both distribution and prices, of all categories of steel other than flat rolled products and billets which, between them, accounted for about half the total production. Actually, control of distribution and prices of the "decontrolled" categories was merely transferred from the Government to a Joint Plant Committee (J.P.C.), on which the main producers were represented, under the chairmanship of the Iron and Steel Controller. Control over the prices and distribution of flat rolled products and billets continued to be exercised by Government through the same officer.

22. We and the Indian Iron and Steel Company have urged Government to decontrol all categories of steel and to allow freedom of action to a re-constituted and more independent J.P.C. subject to certain conditions and safeguards in the interests of the consumer. The Study Team set up by Government over a year ago, under the chairmanship of Shri R.K. Khadilkar, M.P., has made somewhat similar recommendations. The Steel Ministry, however, have instead proposed revising the constitution of the J.P.C. in a manner which would in fact increase still further their control over the machinery of price fixation and distribution. We have strongly protested against these retrograde proposals and I understand Government are re-considering the matter.

EXPANSION

23. In my statement last year, I referred to the discussions we had had with the Government of India over the last few years regarding the possible further expansion of our plant at Jamshedpur as part of the general expansion of the Steel industry, and to Government's specific request to us last year to submit plans for an expansion of our capacity by a further two million ingot tonnes. Although, in view of the magnitude and terrific cost of such an expansion, we were doubtful of the chances of such a project proving practicable from the financial point of view in the existing and foreseeable economic conditions prevailing in the country, we undertook to have a detailed project report prepared by an independent firm of Consulting Engineers assisted by some members of our senior engineering staff. The report has just been received. In the meantime, however, the deterioration in the country's economic situation and the large increase in capital costs, resulting from devaluation, have necessitated a drastic review of steel targets for the Fourth Plan period. It seems inevitable therefore that this project will be put in cold storage until conditions improve.

24. While, under normal and buoyant economic conditions, the expansion of our plant to four million tonnes would have proved practicable and would certainly have resulted in many advantages, the financial commitments involved after devaluation would be so large as to be beyond our capacity to risk undertaking in the present economic conditions. As it is, it will be difficult enough for us to finance the capital expenditure programmed for the next five years, the total of which is estimated to reach the formidable figure of Rs. 100 crores, including the Balancing Schemes and collieries modernisation and expansion scheme as well as normal replacements and improvements. On a rough estimate, devaluation is expected to raise capital costs by a third or more taking into account both imported and indigenous plant and equipment. In view of this heavy extra burden and the many uncertainties facing us, a careful review of the whole programme is being undertaken by the management with a view to reducing the total expenditure to the minimum consistent with essential requirements.

MR. S. MOOLGAOKAR

25. I am sure shareholders will warmly welcome the appointment of

Mr. S. Moolgaokar as a Director and Vice Chairman of our Company. His outstanding talents and abilities as an engineer-administrator, coupled with his intimate knowledge of Jamshedpur affairs and of the needs and problems of industry generally, will be of great value to our Company.

26. In closing, I would like, on behalf of the shareholders and the Board, to express our appreciation to all members of our staff and work force at Jamshedpur and elsewhere, for their continued good work during the year under review which is reflected in the results placed before you.

Chairman's Statement for the year 1966-67

Bombay, 27th June, 1967

TO THE MEMBERS,

ECONOMIC SITUATION

On the economic front, the past year has been a disastrous one. While millions of our people in various parts of the country, and particularly in Bihar, suffered grievous hardships as a result of the failure of two successive monsoons, and of the continued inflationary rise in prices, large sectors of industry have been seriously affected by a significant recession in demand and mounting costs on the one hand, and a virtual collapse of industrial discipline, and, in many instances, of law and order, on the other. The engineering industries, located in the eastern part of the country, have suffered most from these adverse factors. The only silver lining in the dark clouds overhead has been the removal, at least for the time being, of one of the most serious impediments to production in the shape of shortages of raw materials and foreign exchange. The liberalisation of maintenance imports, thanks to foreign aid, has enabled many industries to achieve a higher utilisation of installed capacity. Unfortunately, this relief has been nullified in many cases, and particularly in the engineering industries, by the deep recession which has overtaken the economy.

LAW AND ORDER

2. On the labour front, the difficulties faced by the engineering industry in Bengal and Bihar have been greatly aggravated by the policies adopted by their new Governments consisting mainly of a coalition of Socialist and Communist Parties. Under the guise of the democratic rights of the people, mob rule has been allowed to prevail in Bengal and to a lesser extent in Bihar and elsewhere and the management of industries has in some parts of the country become a veritable nightmare. There is clear evidence that one political party in the country is taking full advantage of its participation in the government of these States to encourage the process of disintegration as a necessary prerequisite to the assumption of power it hopes ultimately to achieve.

3. At the same time, it is only fair to recognise that if some of the people of Bengal have responded to the call for indiscipline and disorder, it is partly due to their frustration and despair caused by persistent shortages, spiralling prices and the obvious absence of any significant progress in their standards of living, coupled with massive unemployment or under employment. What is so heartbreaking is that the miseries inflicted on our people, the stagnation in our economy, and the debasement of our currency could have been avoided by recourse to sensible and pragmatic policies the effectiveness of which has been amply proved in other countries. Even today, if our Government and political leaders would learn the lessons of our economic debacle and recognise the winds of change sweeping even the communist countries of Europe, if they would realise that efficiency in industry and low costs of production cannot be achieved by bureaucratic means and by shackling management with bureaucratic chains, that competition and the play of market forces provide vital stimuli for dynamic growth and change, and finally that punitive levels of individual and corporate taxation such as prevail in India are self-defeating; if all these lessons were learned and governmental policies and decisions adjusted accordingly, I, for one, believe that this country would rapidly emerge from its present crisis, and would achieve rapid economic progress, strengthened and tempered by its ordeal.

REDUCED PROFITABILITY

4. Coming to our own problems, the past year has been, from the shareholders' point of view, a most disappointing one in that, despite the maintenance of full production the disposable profits were the lowest in the last five years. The cause of this sad state of affairs is not far to seek, being wholly due to the fatal combination of unchanged ex-works prices on the one hand, and persistently rising costs on the other, for which Government was largely responsible. While the industry was compelled to maintain prices at substantially the same level for nearly three years, our costs rose by over Rs. 100 per tonne over the same period. On a million and a half tonnes, the impact on our gross profits comes to no less than Rs. 15 crores a year, or about half of that after taxes. Although Government decontrolled about 50% of steel categories in March 1964, the maintenance of control over flat rolled products and billets precluded in practice any increase in the prices of the former by the Joint Plant Committee until complete decontrol was announced recently.

DECONTROL

5. The withdrawal of direct Government control over the distribution and pricing of steel with effect from May 1967, which brings to an end the control regime which has prevailed for 26 years, is a step in the right direction, although the measure introduced is more in the nature of a transfer of control from Government to a body, on which Government have a dominant voice, than of full decontrol. While, therefore, we welcome this step, we must deplore the long and unnecessary delay in taking it. Your Company, along with other producers, has repeatedly and consistently represented to Government the unfairness of the imposition of heavy cost increases on the one hand and the maintenance of prices on the other, while all Government enterprises and industries in many other fields were allowed to raise prices to meet at least a substantial part of the increases in their costs.

6. In order to protect the customer and in recognition of the importance of holding the price line, we persistently advocated the solution of increasing our ex-works prices not by an increase in market prices but by a reduction in the grossly excessive excise duties, which burden the steel industry, amounting as they do to about Rs. 150 per tonne. Our pleas for relief were disregarded and we found it impossible to move Government to any action whatever for nearly three years. Today the position is that while Government have accepted, on decontrol, increases in the prices of the various categories of steel, which, in our case, will average Rs. 50 to Rs. 55 per tonne, amounting to about half our increases in costs since the previous prices were fixed, the demand for most categories of steel has sharply declined as a result of the economic recession. Furthermore, so long as inflationary forces continue to operate in the country, costs are bound to go up further.

COST REDUCTION PROGRAMME

7. We are naturally making every effort to keep costs under control and to minimise as far as possible the effect of such increases. Apart from general cost control measures, we are taking some important long range steps. Amongst them, we are undertaking the establishment of a plant at our Noamundi Mine to pelletise the blue dust and fines produced at this Mine. The use of pellets in the ore burden of a blast furnace increases its output and efficiency and reduces costs by reducing the consumption of coke and limestone. Such use of pellets is growing rapidly throughout the world and the later expansion of our pelletising plant could well provide us in time with a valuable export potential, apart from meeting a vital need of our own.

8. The completion of our long range programme of development and improvement at our ore mines early next year and the commissioning of the pelletising plant a couple of years later, should result in a marked improvement in the quality, consistency and cost of the iron produced in the blast furnaces, which will have a beneficial impact on the output and cost of finished steel.

9. Similarly, we are in the process of finalising a long range programme of development and modernisation of our coal mines in the Jharia and Bokaro fields which, after its completion in five to seven years, should not only make us virtually self-sufficient in our coal supplies but give us better coal at a substantially lower price than we would otherwise have to pay.

10. We are expanding our research and development activities from which we hope, in time, to see emerging profitable new processes and products.

11. At the other end of the cost/price equation, we are undertaking a programme to increase appreciably our output of quality steels for which the demand is growing. This is independent of the Alloy and Tool Steel Project which has made little progress since last year.

ALLOY AND TOOL STEEL PROJECT

12. In regard to this project which, as you are aware, was to be established with Japanese collaborators at Adityapur, a new industrial estate close to Jamshedpur, rising capital costs, principally due to the devaluation of the rupee, have necessitated a careful review of the project from a financial and economic point of view. Apart from this, two developments make us inclined not to hurry the implementation of the project. One is the serious set-back in the profitability of the Company's operations for the reasons mentioned earlier, coupled with the recession in demand which has tied up a good deal of additional finance in increased inventories and may, unless it comes to an end very soon, even lead to a curtailment of steel output in the country. The other is the situation in Bihar in regard to labour matters, law and order and, generally, the attitude and policies of the State Government.

BIHAR GOVERNMENT POLICIES

13. As stated earlier, the new State Government which has emerged from the recent General Elections is formed of a coalition of parties largely dominated by the Socialist and Communist Parties. It is an unfortunate fact that most Socialists in India, unlike Socialists in the other non-communist countries of the world who have evolved and matured greatly since the days of Marx, adhere to an obsolete concept of Socialism, which they largely equate with Marxism. This makes them ipso facto hostile to private enterprise which they are in fact pledged to eliminate totally as soon as practicable. Thus, one of the foremost points in the 33-point programme of the Government of Bihar is that "immediate steps will be taken to abolish Tatas' Zamindari in Jamshedpur". No attempt was made to check whether in fact there were any lands at Jamshedpur over which the Steel Company could be said to have "Zamindari" rights. We naturally pointed out that there was no Zamindari at Jamshedpur, but that did not deter some Ministers of the Bihar Government, on visits to Jamshedpur, from inciting people to take illegal possession of any vacant land in the town belonging to the Company. We have naturally protested against this move which seems to have been instigated by mischievous elements in Jamshedpur and which, if allowed to be acted on, would soon result in the creation of the horrible slums and squatters' colonies and the dangerously unhygienic conditions which unfortunately prevail in so many cities of India, including the urban areas surrounding Jamshedpur.

14. My colleagues and I have called on a number of the Ministers concerned, with whom we have had frank and cordial talks. We were impressed by their anxiety to serve the people of Bihar. We were assured that there was no intention to harm the interests of the Steel Company whose contribution to the industrial development of Bihar and to the welfare of its employees was recognised. We were in fact urged by all the Ministers whom we met to invest more money in Bihar and help in its further development. We were less impressed, however, by their understanding of economic and industrial problems, and by their faith in an out-dated and somewhat primitive concept of Socialism. We informed them that while we were anxious to develop the activities of the Tata Group of Companies in Bihar, the conditions in the State and Government's attitude towards private enterprise would inevitably have an important bearing on our plans and on the investment of further funds in that area. We pointed out that the conditions as they existed today, the growing labour indiscipline in industry, the "gheraos" and other forms of coercion and disorder tolerated by Government, the continued threat of action inimical to the interests of the Steel Company and to the beautiful and efficiently run city of Jamshedpur, hardly provided the assurances and encouragement required to induce private enterprise including Tatas, to invest further monies in Bihar when the same investment could be made more profitably and safely in other States enjoying more stable and propitious conditions.

TATA RELIEF WORK IN BIHAR

15. While on the subject of Bihar, I must refer with a heavy heart to the appalling sufferings of millions of the people of the State caused by the failure of the last two monsoons. You will, I am sure, warmly approve of the relief work which your Company, jointly with the Tata Engineering and Locomotive Company and the Tata Trusts, has undertaken in a particularly hard-hit area in Bihar.

16. The plight of Bihar and the sufferings of its people provide a harrowing illustration of the result of wrong economic policies over a period of years. It is inconceivable, but it has happened, that a State like Bihar, perhaps the richest in the Union in minerals and industrial potential, watered by India's greatest perennial river as well as by other rivers, should, after twenty years of economic planning and enormous developmental expenditure, suffer acute distress and economic collapse as a result of the failure of the monsoon. It cannot but anger one to think that priority over agriculture and irrigation should have been given to gigantic industrial schemes such as the Heavy Engineering complex in Ranchi and the Bokaro Steel Plant on which over Rs. 1200 crores are in the course of being spent. We wish the new Government of Bihar well and will do whatever we can to help them in constructive activities, but I must express the gravest doubts that their economic policies and programmes will bring about a solution to the long-term problems of the State as long as they are primarily based on ideological and doctrinaire considerations.

17. In closing, I should like, as usual, to express on your behalf and your Directors' and mine, our grateful thanks to the Management and Staff, particularly at Jamshedpur, whose heavy task has been rendered all the more onerous by the difficult conditions under which they have had to work. Of all the companies at Jamshedpur, the labour situation in the Company's Works has been the best up to now, at least in the sense that they have been free from stoppages of work and serious agitation. This proves once again the maturity of our labour force, many of whom have known no home but Jamshedpur, and no work but service in the Steel Company. I am grateful to all of them for their loyalty and good sense, and I have every hope that with their support and the devoted work of our supervisory staff we shall overcome the present difficulties facing us and resume our progress towards better times for them and for our shareholders, and for the country as a whole.

Chairman's Statement for the year 1967-68

Bombay, 15th July, 1968

TO THE MEMBERS,

The year under review has been a disappointing one for your Company, even more so than the previous year. Although production and sales remained at near capacity levels, the profit margin was squeezed between constant prices on the one hand and rising costs on the other.

2. To add to our difficulties, the industrial recession in the steel consuming industries affected the demand for certain categories in plentiful supply and led to a more unfavourable product-mix. The basic cause of our reduced profit, however, was, as in previous years, the continuous rise in cost elements over which we have little or no control. They consisted mainly of further increases in railway freights, in the prices of coal and raw materials, in wages imposed upon us by Wage Board Awards and in dearness allowance which in the past three years has risen at Jamshedpur by 60%. The root cause of such increases continued to lie in the inflationary forces which have prevailed in our country for the last four years. The country is still paying the price of excessive expenditure of an unproductive nature in the past, combined with inadequate production, chiefly of food. The effect on the steel industry has been particularly severe for, whereas during the last four years countrywide wholesale prices have risen at the rate of 13.3% per annum, the price of steel has risen by only 6.7% per annum.

PROFIT SQUEEZE

3. In those fields in which Government supply the goods or services, such as rail transport and electricity, they do not hesitate to recover their increases in costs by increases in prices to the consumer. So do most industries not subjected to price control. In steel, from 1940 until 1964, Government permitted, albeit after considerable delay and detailed cost examinations, increases in prices corresponding to the increases in cost beyond the control of the producer. Since 1964, however, when steel prices and distribution were notionally decontrolled but in fact remained under control, and the equalisation fund was abolished, the principle of allowing increases in prices to compensate for uncontrollable increases in costs was abandoned and the profit margin between costs and prices has narrowed to a stage where, unless remedial measures are taken, it will soon reach the vanishing point.

4. To make things worse, and most unfairly so, such partial increases as are ultimately agreed to are sanctioned at very long intervals and after inordinate delay. In the absence of an equalisation fund, such partial increases can no longer have retrospective effect as they did in the past and the loss of revenue due to such delay can never be recouped. Furthermore, by the time the increase becomes effective, long after it should have been, further increases in costs have taken place which have fully absorbed the long delayed increase in price.

5. This has been the history of steel prices which in the last three years has resulted in a reduction of our disposable profit, after providing for taxes and development rebate reserve, from Rs. 7.94 crores to Rs. 2.54 crores.

DIVIDENDS

6. Last year we drew Rs. 28 lakhs from Reserves to maintain our dividend on ordinary shares. This year we have to draw over Rs. 270 lakhs to do so. While the Directors have recommended this heavy draft on the Reserves in order to avoid severe hardship to the shareholders, both in loss of income and of share values, which a cut in dividend would have inevitably entailed, it is clear that this process cannot be continued in the future without seriously impairing the financial stability of the Company. Furthermore, in terms of the Loan Agreements with the World Bank, dividends cannot be paid out of Reserves except with their approval. The Bank have in the past, including this year, been good enough to accept your Directors' recommendation but it can hardly be taken for granted that they will continue to do so in the future unless the Company's profitability and ability to build up its reserves show clear signs of improvement.

7. It may be argued that even if Government had allowed an adequate increase in steel prices during the past two years, such increases could not have been realised in view of the recession in demand. This is only partially true, for the recession has applied only to some categories of steel while a substantial shortage still exists in other categories for which the ultimate consumer pays much higher prices in the black market. If steel had been fully decontrolled, the producers in both the Public and Private sectors could have been trusted to adjust prices with restraint and taking due account of the market conditions for each category, while at the same time ensuring fair distribution to all.

8. In May 1967, Government sanctioned an increase in the average price of steel equivalent to only about half the uncompensated increase in costs which had taken place during the previous three years. Since then, the whole of this price increase has been absorbed by further increases in costs beyond the industry's control. Along with the other producers, we have for many months been holding discussions and corresponding with Government. I am glad to say that there has been unanimity between representatives of the Public and the Private sector plants. We have continued to recommend effective decontrol of distribution and prices subject to reasonable safeguards in regard to categories in short supply and to priority requirements of Government. Failing such total decontrol, we have recommended a reasonable price increase calculated to meet the uncontrollable rise in costs which has taken place since the last increase in price, and to enable the industry to re-establish a reasonable level of profit.

9. If Government, while recognising the industry's need for higher ex-works revenues, are not willing to increase prices to the consumer to the full extent required, we have pleaded that they should reduce the excise duties which are unconscionably high. The position today is that Government have up to now neither accepted any of the unanimous recommendations of the industry nor come to any alternative decision, and in the meantime the industry in general and we in particular, continue to suffer from the lack of adequate revenues to pay reasonable dividends and to ensure continued modernisation and growth.

INDIAN AND FOREIGN PRICES

10. While it is true that steel prices to the consumer have risen considerably in the last ten years, and one can therefore appreciate Government's anxiety to hold the price line, I should like to dispel the belief held in some quarters that steel prices in India are substantially higher than in other countries. Taking for instance a representative product-mix of structurals, bars, plates and black sheets, and ignoring the excise duty which is a form of taxation, the average ex-works price in India is Rs. 610 per tonne compared with

Rs. 973 in the U.S.A., Rs. 786 in the U.K., Rs. 712 in Belgium, Rs. 783 in Australia and Rs. 606 in Japan. It will be seen from the above that, except for Japan which has always been an exceptionally low cost industrial producer, the price earned by the Indian steel producer is appreciably lower than in other countries.

NEED FOR PLOUGH-BACK

11. I had hoped at one time that Government themselves having become major steel producers would have realised the need to ensure the health and long-term solvency of the industry by allowing it prices which would fully cover inescapable overheads. This by itself would require an increase of about Rs. 100 per tonne in ex-works realisations. As steel producers, Government will sooner or later have to meet such overheads, for depreciation is an unavoidable charge on any industry. In preferring to impose heavy excise duties rather than allowing a straight increase in steel prices, Government, it is true, ensure to themselves a revenue of about Rs. 75 crores a year at the present level of production but, in the process, they sacrifice the legitimate interests of the steel industry including those of Hindustan Steel, their own company, which has been, and continues to be, compelled to operate at a heavy loss.

END OF INFLATION?

12. In view of Government's continued unwillingness to base their policies on economic realities rather than on political expediency, any real hope of a permanent improvement in the fortunes of the steel industry must be looked for outside the realm of Government action. Fortunately, there is indeed a promise of relief from the relentless pressures of inflation and rising costs visible in the dramatic developments which seem to be taking place with increasing momentum in the agricultural sector.

13. Inadequate foodgrains production has been the major cause of inflation which has been responsible for spiralling wages and dearness allowances throughout industry. It is, therefore, reasonable to assume that a plentiful supply of foodgrains and agricultural raw materials, the signs of which seem to be developing throughout the country, will act as a powerful antidote to inflation. If, at the same time, our consumer and service industries are able to provide the other goods and services essential to a reasonable standard of living and thus to absorb the growing purchasing power of the people, particularly in the rural areas, Indian industry will at long last be able to operate in a relatively stable economic environment in which it can concentrate its efforts on modernising its plant, rationalising its operations, diversifying its products, improving its efficiency and cutting its costs. It is in these factors, in my view, that lie the hopes of better days for the steel industry in general and our Company in particular.

14. In the meantime, however, the need for urgent relief from the present profit squeeze through a reasonable increase in prices remains, and I hope that, by the time the shareholders meet in General Meeting this year, a decision favourable to the industry will have been taken by Government.

RESEARCH

15. Apart from the need for fair prices and stabilised costs, we in Tata Steel recognise the scope for improved profitability to be found in diversification into higher yielding products. Throughout the world there has in the last decade or two been a marked trend away from plain carbon steels and towards quality and special steels. Although before World War II, Tata Steel was in the vanguard of technological progress in India and pioneered a number of new ideas and processes, progress in that direction has been slow since then, partly because of a lack of interest on the part of steel consumers and partly because of our own preoccupation with the many problems and difficulties we have had to deal with. We are now laying greater emphasis than before on research, mainly in the direction of product development. This is a field in which quick results cannot be expected, but, in the long run, money spent on research and development should pay rich dividends.

PLANNING FOR STEEL

16. We are on the threshold of a new Five-Year Plan, fortunately delayed by some three years. This delay, or period of consolidation as I prefer to call it, has been a boon to the economy as a whole and to the steel industry in particular which has been grossly over-planned in the past. I derive no pleasure from the fact that I have been proved right in the misgivings I have expressed from time to time about the target for steel in the Third Five-Year Plan, but only relief that it has not been reached. With the market saturated with only 4½ million tonnes of steel, we can imagine the plight in which the steel industry and perhaps the whole economy would have been if the capacity had instead been in the neighbourhood of about 8 million tonnes as originally planned. With over Rs. 700 crores locked up in idle plant and the industry limping along at 50% of capacity, it would have been in serious trouble. It is at least of some comfort to know that the steel consumption visualised for the Fourth Plan period has been estimated on a more realistic basis than in the past and also that it now seems to be realised that the shortage of special steels has been a greater and more costly handicap to industry and to the country than small shortages in ordinary market qualities of steel.

EXPORTS

17. We have continued our efforts to boost our exports of steel which reached 68,000 tonnes during the past year. In view of the continuing foreign exchange crisis, exports are a vital necessity and justified even when relatively unremunerative. This is particularly so in times of recession as at present.

18. I, however, wish to warn against the exaggerated belief prevailing in some quarters in a large export potential for Indian steel. World steel capacity is today already far in excess of world consumption and continues to grow at a rate exceeding that of demand. As a result there is a growing glut of steel in export markets and export prices tend to be increasingly unremunerative. Moreover, because of the highly capital-intensive nature of the steel industry, the ratio of output to investment is among the lowest of all industries. It costs today around Rs. 2,500 including, say, Rs. 750 in foreign exchange, to create capacity for an annual production of one tonne of steel which sells in export markets for only about Rs. 500. Thus, on exports of steel the ratio of revenue to investment is about 1 to 5. In contrast, the ratio in the case of almost any other industrial product, one can think of, whether in the engineering, electrical or chemical fields, is much higher than in steel and exceeds 1 to 1 in the more sophisticated products. Is it not clear, therefore, that if India is to spend money, including hard earned foreign exchange, to establish manufacturing capacity specifically for export, it should do so in products with the highest possible revenue to investment ratio rather than in steel?

POLITICAL SITUATION IN BIHAR

19. As this is written, the establishment of President's rule in Bihar has been announced. Your Company has always scrupulously followed the policy of taking no part whatever in politics which must rightly be left to the politicians. This does not mean that we are not vitally concerned with the type of Government we have to deal with in our day-to-day affairs in Bihar, which are considerable by virtue of the magnitude and scope of our operations there. While we have always extended our full co-operation to whatever Government has been in power, we have, in recent years, had to face many difficulties and pressures caused by the policies and attitudes of a succession of State Governments. In particular, we have been unjustifiably harassed with threats of action against us in pursuance of the abolition of a mythical "Tata Zamindari" at Jamshedpur. The next few months during which President's rule will prevail in Bihar should bring stability and peace to the State and we can only hope that when an elected Government takes office again, its complexion and policies will be such as to ensure both sound administration and fair treatment to industry.

20. In this connection, I would like to express on behalf of the shareholders sincere thanks to the many people at Jamshedpur, official and non-official, in the Company and outside it, who laboured, at times at great personal risk, to stop the illegal encroachments on the Company's lands which the antiZamindari campaign of some political parties in Bihar let loose on Jamshedpur. If Jamshedpur has remained a model town all these years, it has been largely because of the success achieved by the Company in controlling the use of land in the interests of the health and amenities of the people of Jamshedpur. Without such control and supervision by Company officials, it would have taken little time for this beautiful city to have inflicted on it the horrible slums and squatters' colonies which disfigure and threaten the health of most other towns in India. In fact, these very conditions prevail today all round the Company's area at Jamshedpur where no such control has been exercised.

MANAGING AGENCY SYSTEM

21. I should now like to refer to the impending abolition by legislation of the Managing Agency system. From all accounts and from the fact that a Bill for that purpose has been introduced in Parliament, it would seem that Government are now determined to abolish the system altogether by April 1970. It is for you, as owners of this Company, to judge whether you will benefit or not from this drastic measure. Although my own judgment may be considered prejudiced, I do believe that experience will ultimately show that Government destroyed a form of management which, administered as it should be, is a highly efficient one, especially suited to India at its present stage of development, and in the real interests of managed companies and their shareholders. Like any other system—business, political or social—created and run by human beings, the Managing Agency system is liable to be abused for selfish purposes and was, in fact, so abused in some instances. But I do not know of any form of management, whether in the public or private sector, which is not open to dishonest practices or corruption if those at the helm are so inclined. The record clearly shows that in India, as in other countries, dishonest or nepotic management is not the exclusive preserve of the Managing Agency system. In fact, management by a firm of long standing and proved integrity is obviously less prone to suffer from malpractices than management by a succession of individual chief executives or ever changing boards of executive directors.

22. The Department of Company Law Administration has itself claimed that the drastic regulation by the Companies Act, 1956, has purged the system of much of the abuses noticed before. Further, it is not possible under present conditions and in the state of existing law for managing agents to operate as a hereditary office. The transition to a professional type of organization which was achieved long ago by your own Managing Agents has become more pronounced with the advent of changes in management techniques and systems all over the world. Managing agency houses have not been slow to respond to the demands and pressures of modern and up-to-date methods of management.

23. At our present stage of development, there is not only a crying need for rapid industrial expansion and diversification, but also a severe dearth of experienced management, inevitable in a rapidly expanding economy. The right type of managing agency firm, consisting preponderantly of experts in various fields of management, technology and administration, clearly provides a combination of managerial resources and experience which cannot be matched by any other form of company management. This applies particularly to new ventures into new fields. Finally, there is the crucial question of confidence, an essential and elusive ingredient in the task of raising fresh capital in a country like ours where the investor is notoriously shy and prefers to entrust his money to people whom he knows by name and reputation.

24. One of the main reasons responsible for the decision to destroy the Managing Agency system altogether seems to lie in the belief expressed in the statement of objects and reasons of the Bill, and the argument advanced, amongst others, by the Monopolies Commission, that the system has hastened the process of concentration of wealth and economic power in the country. As regards wealth, it is obvious that under our punitive tax laws on wealth and income the accumulation of personal wealth is possible only through tax evasion for which there is obviously no special scope in the Managing Agency system. So far as concentration of economic power is concerned, having worked as I have for over forty years under the system, I have never been able to understand this argument nor have I ever been conscious of having acquired any special economic power denied to others in business or industry not operated under the Managing Agency system. In fact, under the heavily regulated regime of control and licensing prevailing in our country since Independence, such economic power has been transferred wholly to Government officials and Ministers. It is in any case difficult to see how transferring management from a Managing Agent to a Managing Director or an Executive Chairman will make any difference in the exercise of economic power. Lurking in the minds of those responsible for this oppressive measure, is the fear and suspicion of bigness in private enterprise. While there is of course no doubt that small scale and medium industries play a vital part in the economy of any country, and in fact form the vast majority of industrial enterprises, the fact remains that in most heavy and mass production industries, efficiency, technological progress and low costs are largely proportionate to size. In such industries, only the big companies can afford the costly research departments and computers, the elaborate modern tools of management, the deployment of a host of experts specialised in individual fields of corporate management, all of which contribute to efficiency, low costs and maximum competitiveness. This is realised throughout the world, but in our country Government and many of our politicians prefer to ignore realities and to pursue the dream of an Utopian industrial society in which small Indian companies, weak in material and human resources, successfully compete with the giants of the world and capture their markets from them.

25. Before closing, I should like to thank my esteemed colleague Sir Jehangir Ghandy, for voluntarily making way on the Board for the second time for a younger man, in this case for Mr. S. K. Nanavati, our Director-in-Charge at Jamshedpur. Sir Jehangir, who has devoted a lifetime of distinguished service to the steel industry in India, remains as young and active as ever and continues to be actively associated with a number of your Company's sister concerns.

26. In conclusion, I must, on your behalf, express once again our appreciation to the management, staff and workers of the Company at Jamshedpur and elsewhere for the hard work put in by them during the year under review. Our thanks are due to our workers at Jamshedpur as also at the Mines and Collieries where, in contrast to conditions in many parts of the country, industrial peace has continued to prevail. I would also like to thank our Sales organisation for their successful efforts in maintaining the level of our sales during the year, notwithstanding the recession in demand, and in thus avoiding the need for any significant curtailment of production.

Chairman's Statement for the year 1968-69

Bombay, 18th July, 1969

TO THE MEMBERS,

Although the results of the year under review have been somewhat better than those of the previous year, the conditions under which our Company and the whole steel industry operated remained basically the same as in the previous year. We and our colleagues in the industry have continued to suffer from the same relentless squeeze between costs and prices, from the same resulting lack of adequate resources to plough back into modernisation, diversification and growth, and from the same confused and unpredictable political situation in the States in which the Private Sector has its plants. In fact, most of what I said in my Statement last year is just as true today as it was then.

CHANGES—BAD AND GOOD

2. Taking the country as a whole, however, there have been a few significant changes, some for the better and some for the worse. On the debit side is the deterioration in the law and order situation in many parts of the country, and an alarming increase in the resort to violence for the redress of grievances and for the achievement of political objectives. The problems faced by Government at the Centre and in the States are admittedly complex and difficult. Some of them are of such a nature that their solution must necessarily take many years during which all that can be expected from Government is patience, tact and a firm adherence to principles and long-term national objectives. Others, on the other hand, can and must be solved by urgent and positive action, too often replaced these days by indecision and delay which only aggravate the problem.

3. One particular item, which clearly calls for immediate and decisive action, is the open challenge of one party in the country which has now brazenly announced its objective as being "to break the Constitution from within" and to bring about a class war in the country as a means of capturing power.

4. On the credit side is the welcome picture of increased strength presented on balance by the Indian economy during the past year. Thanks to a great extent to the improved agricultural output of the country, the inflationary trends have been, if not arrested, at least slowed down; the industrial recession is disappearing, particularly in regard to the demand for steel; exports have soared to new heights and the investment market has staged a significant recovery from many long and languishing years of depression.

5. The business and industrial community has had reason over the years to criticise Government for their economic policies and the resulting failures and shortcomings in our economy, It is only right, therefore, that we compliment them on the substantial progress made in agricultural production, which has led to some degree of stability in food prices, and on the success of their export drive, both of which were largely the result of Government strategy and action.

IDEOLOGY

6. It is a pity that Government continue to deny us the pleasure of congratulating them also on their industrial policies which are still heavily swayed by ideology and by an obsolete and incorrect interpretation of socialism as it has evolved in the world over the years. The clamour for the nationalisation of banks, which can achieve no useful purpose that cannot be achieved by social control, is a typical example of the injection of political expediency into purely economic affairs.

7. The sound and welcome trend towards a liberalisation of licensing policies seems to have receded. As a result, the expansion of the country's industrial base has slowed down dangerously and the slow progress in the development of consumer industries is not only retarding the march of the economy as a whole, but also laying the foundations for an aggravation of inflation in the future. This will be inevitable if the mounting demand for consumer goods generated by higher earnings, particularly in the agricultural sector, fails to be met by an increase in the supply of goods. Here again, ideology raises its head. The Planning Commission and powerful elements in Government advocate that consumer industries should be made the exclusive preserve of small-scale industry and denied to large-scale organised industry.

ECONOMIC POWER AND THE MYTHICAL CRORE

8. The alleged need to prevent a mythical concentration of economic power in private hands has become the fashionable slogan of the day in leftist circles and has led the latter to an absurd interpretation of bigness in the modern world. A crore has become the magic figure and the symbol of bigness and therefore of monopoly. Consequently, any project of a crore or more must be denied to the Private Sector and reserved for the Public or Cooperative Sector. It does not seem to be appreciated in such quarters that a crore means little more than about ten lakhs thirty years ago, both because of the debasement of the currency and because of the much greater investment in plant and equipment required to be made in modern industry.

9. In other countries, the industrial progress of which India aims to emulate, industrial projects or ventures of £550,000 or $1.3 million, equivalent to Rs. 1 crore, would rightly be considered small-scale enterprises. In our own industry even the smallest steel plant based for instance on a couple of small electric furnaces, a continuous casting train and a rolling mill, which would be a very small unit by any standard, would cost, with all ancillary facilities, at least ten times our socialist friends' magic crore.

THE YEAR'S RESULTS

10. Coming to our own affairs. the results of the year were somewhat less disappointing than last year's, thanks largely to the price increase granted by Government from August 1968, and to a more remunerative product-mix resulting from the increased production and sale of skelp and galvanised sheets. On the other hand, because of a three months' delay in sanctioning it, the inadequate increase of Rs. 40 per tonne in steel prices was in force for only eight months of the year and thus averaged only Rs. 27 per tonne over the whole year. Furthermore, a substantial part of the increase was absorbed during the year by further increases in costs due to factors beyond management's control.

11. We have once again in a representation drawn Government's attention to the large increases in costs caused by various factors beyond the Company's control, such as increases in the Company's wage bill due to increased dearness allowance and Wage Board awards, increases in the prices of coal and other raw materials, in freight charges and in a variety of Government imposts which have taken place since 1964. We have pointed out the substantial extent to which the small price increases sanctioned by Government in 1967 and 1968 have left these costs uncompensated.

STEEL PRICES—THE BASIC FACTS

12. In my Statement last year, I reviewed the history of steel prices, a subject which has unfortunately become controversial and the basic facts of which seem to be forgotten or ignored. In view of the crucial importance to us of the subject, I shall devote to it most of the rest of my remarks. The basic facts underlying steel prices are straightforward and simple and should be quite uncontroversial.

13. Steel, along with electric power and basic chemicals, is universally recognised as one of the most important basic elements in the industrial infrastructure of any country, because of its impact on all other industries. It is, therefore, in the vital interests of the country and of the secondary industries depending on these basic industries, that the latter be kept healthy and efficient. It is, of course, also in the interests of user industries that the price levels of the products and services of these basic industries should be kept as low as possible.

THE PROBLEM

14. The problem is to reconcile these two objectives in determining from time to time what such price level should be. I submit that this should be done on the basis of the answers to the following questions:

(i) Are current steel prices adequate to enable well-managed steel plants to meet the criteria of efficiency, low cost, quality and product range?

(ii) Are the domestic prices charged by the steel plants in India higher or lower than those charged by the steel plants in other countries?

(iii) Does the Indian steel industry make excessive profits?

(iv) If the answers to the above questions point to a necessity to raise prices, will it place an excessive burden on steel users?

... AND ANSWERS

15. The answer to the first of these four questions is clear: no capital-intensive industry can maintain high efficiency without a continuous investment in new plant and equipment for replacement and modernisation, and in research. In turn, no such investment is possible without an adequate generation of resources from current operations to finance a part of such investment and to support fresh borrowings and/or capital issues for the balance. The price structure must, therefore, provide fully for the normal erosion of assets, i.e. depreciation, for the cost of borrowed money and for a reasonable return on capital.

16. The price structure imposed year after year on the Indian steel industry has clearly failed to meet these requirements in respect of either works costs or overheads. As against increases in works costs since 1964 totalling Rs. 130 per tonne, due solely to factors beyond the industry's control, mentioned earlier, Government have allowed price increases of only Rs. 88 upto August 1968.

17. In regard to overheads, the Tariff Commission, at its last enquiry held into the affairs of the steel industry in 1962, had recommended that steel prices should include Rs. 172 per tonne for depreciation and return on "a notional standard gross block" of Rs. 1,300 per capacity-tonne. Government arbitrarily cut the provision to Rs. 156, by reducing the standard block to Rs. 1,176. In fact, today the average capital cost of the Jamshedpur plant is about Rs. 1.640 per tonne and is steadily rising as old equipment is replaced by new, while the average of the three Hindustan Steel plants is in the neighbourhood of Rs. 2,500 per tonne.

18. Similarly, Government cut down the figure of Rs. 9 per tonne at 5% on working capital recommended by the Commission by Rs. 3. Today, not only has the quantum of working capital increased because of the higher costs of inventories, but the rate of interest has nearly doubled.

19. Thus, between uncompensated escalation cost increases, depreciation, interest on working capital and return on block—out of which, it is important to note, must come bonus to employees, management costs, taxes, dividends and minimum accretions to reserve for plough back—current steel prices are short of requirements by not less than Rs. 116 per tonne in the case of Tata Steel. This is the increase we have requested, out of which Government would in any case take back Rs. 58 in income-tax.

20. The answer to the first question is, therefore, that current steel prices are not adequate to enable steel plants to meet the above-mentioned criteria of efficiency, low cost, quality and product range.

21. The answer to the second question, whether the prices charged by the Indian steel plants are higher or lower than those charged by steel plants in other countries, is that, excluding excise duty, the Indian ex-works price of steel in a representative product-mix is about Rs. 655 against Rs. 835 in the UK, Rs. 1,070 in the USA, Rs. 790 in Japan, Rs. 795 in West Germany and Rs. 785 in Australia. In all cases, therefore, Indian steel producers get less for their steel than their counterparts in the major steel-producing countries of the world, and to that extent they subsidise steel-using industries and other consumers.

OPPRESSIVE EXCISE DUTIES

22. The whole price structure of Indian steel is grossly distorted by the oppressive excise duties on steel against which we have protested innumerable times but to no avail upto now. Starting with a levy of Rs. 5 per tonne of finished steel in 1935, which remained unchanged till 1957, this pernicious impost has progressively increased to the present average figure of Rs.150 per tonne on our product-mix. While no one can dispute the need for taxes for development—and we are all aware of the tremendous problem faced by the Finance Minister in raising tax revenues—there is an unanswerable case against taxing heavily a product like steel, the principal raw material for all engineering, construction, transportation and many other industries. No other country, to my knowledge, has imposed an excise duty on steel. The objection to the Indian excise duty is all the greater because of the magnitude of the impost. Government collect over Rs. 70 crores annually from this source, of which we contributed no less than Rs. 23 crores last year, which is almost four times our profits after tax! We have unfortunately failed upto now to convince Government of the imperative need to reduce excise duties on steel and can only hope that the facts of the case themselves will, in due course, persuade Government to do so.

23. The answer to the third question, whether the Indian steel industry makes excessive profits, is clear from the fact that we and Indian Iron are unable to pay dividends from current profits.

24. The answer to the fourth question, whether steel consumers can afford an increase in steel prices, is, admittedly, more difficult, but an objective assessment of the various elements and factors must clearly show that the answer is in the affirmative. For instance, an increase of the order of Rs. 100 per tonne in the cost of steel annually purchased by the Railways—the largest single consumer of steel in the country—would come to about 0.7% of their annual expenditure.

25. In the case of engineering products, the percentage of their selling prices represented by the cost of steel naturally varies according to the steel content of each product. It ranges, for instance, from about 2% in a typewriter to 24% in a railway wagon. Hence, an increase of Rs.100 or so, equivalent to about 11% of present selling prices of steel, inclusive of freight and excise duty, would represent only about 0.2% to 2.5% of their respective selling prices.

26. What the engineering industry really suffers from today is not an excessive price for mild steel but the lack of an adequate variety of steels, particularly quality steels. The steel industry cannot expand and diversify into these additional varieties of steel without the financial resources required for research and development and the creation of the necessary specialised capacity.

27. It does not seem to be realised in our country that, so far as engineering products are concerned, ordinary mild steel has virtually ceased to be used in the world and alloyed and other forms of quality steels have now almost totally replaced them. Therefore, if Government are really anxious to encourage exports of engineering goods, they, surely, should themselves encourage the steel producers to enlarge the range of steels made in the country and allow them the financial means of doing so.

28. Being ourselves closely involved in the engineering industry, I hope its members will not mind my suggesting that it would be far more in their interests to agitate for the rapid development of the manufacture of the wide variety of flat-rolled and other special steels they need and which their counterparts in other countries have in abundance, rather than to resist a small increase in the price of ordinary mild steels.

29. It is a remarkable fact that, amongst the basic industries mentioned earlier, it is only in the case of steel, that Government deny to efficient producers prices which cover costs, depreciation and a reasonable return. To sacrifice the basic needs of the steel industry, perhaps the most important of all national industries, by charging excessively high excise duties on steel, is nothing less than to sacrifice the national interests.

A CONCLUSIVE CASE

30. Concluding this analysis of the problem of steel prices, I submit that there is an irrefutable case for an upward revision in steel prices which can be denied only at the cost of a gradual decline in the Indian steel industry's capacity to meet the country's needs, with disastrous consequences to its future industrial growth. I hope events will disprove the somewhat gloomy newspaper reports recently announcing a determination on the part of Government not to consider any price increase.

ABOLITION OF MANAGING AGENCIES—TWO CONSEQUENCES

31. As shareholders are aware, Parliament have enacted legislation to implement Government's decision to abolish the managing agency system by April 1970. As I discussed the subject at length in my Statement last year, I wish only to touch upon two aspects of the matter, not publicly discussed upto now and which Government evidently had not taken into account when they decided to destroy the managing agency system.

32. Firstly, as recent events in stock exchanges have highlighted, attempts are made from time to time by individuals or groups to capture control of a company for speculative purposes or, possibly, with a view to deriving personal profits in various ways from the operations of the company. Under the managing agency system, such capture of management control was difficult, because management control was in the hands of managing agents under period agreements approved by shareholders and Government. Even if voting control were acquired in a company managed by managing agents, the new possessor of such control would find it difficult, if not impossible, to acquire the management control necessary to enable him, through speculation based on internal knowledge or from commissions on sales and other devices, to exploit his voting power to his benefit. There was thus a real deterrent to such raids in the stock exchange.

33. One result of the abolition of the managing agency system will thus be to render companies previously using that system of management vulnerable and possibly defenceless against such raids. That the transfer of management powers resulting from such raids will be to the detriment of the companies and, therefore, of the shareholders themselves, seems obvious, for it is difficult to believe that speculators would undertake the risks of cornering the shares of a company except with the object of gaining control over its management with a view to making profits for themselves out of the company's funds and operations, which they could not have made otherwise.

34. In this context, it is heartening to find that Government seem to have awakened to the dangers involved in such piratical raids. I am aware that the drastic step they have taken to abolish forward trading in shares will be resented and disapproved of in some quarters but I, for one, welcome it and congratulate Government on a rare example of decisive action on their part.

35. The other point to which I want to draw Government's attention is that by abolishing the managing agency system, instead of preventing the concentration of economic power which was their principal purpose in taking such a step, they will have facilitated and encouraged such concentration, and in a particularly harmful form. Managing agents operating under contracts approved by shareholders and Government and subjected to specific restraints and controls, in fact, exercise very little real economic power, as I know only too well from personal experience over the last forty-five years. On the other hand, the acquisition of control over the management of companies through stock exchange manipulations or other means by wealthy speculators devoid of scruples and managerial experience for the purpose of quick personal profits, will represent a real and vicious form of concentration of economic power in private hands.

36. May I conclude by expressing once again, on your behalf and on behalf of the Directors, appreciation to the management and employees of the Company for their efforts to improve the working of the Company during the past year? In these turbulent days when indiscipline, subversion and violence stalk the land, it is heartening to find the Jamshedpur community of workers continuing year after year to maintain industrial, social and communal peace in their city and thus setting an example of good sense, maturity and civic responsibility for others to emulate.

Chairman's Statement for the year 1969-70

Bombay, 22nd July, 1970

TO THE MEMBERS,

THE YEAR'S RESULTS

The results of the Company's operations for the past year provide little cause for satisfaction.

2. Although the profit before tax was higher by Rs. 1½ crores than last year, the profit after tax was slightly lower because lower tax allowances for depreciation and development rebate increased the provision for taxes.

3. There was a further decline in the production of finished steel, to the causes of which I shall refer later in this Statement along with the remedial steps we have taken and are taking.

4. It is no consolation to us to know that the other steel plants in the country have fared even worse than we have during the year, in the case of Durgapur and IISCO mainly because of the continually disturbed labour situation in the unfortunate State of West Bengal. The aggregate output of about 6¼ million ingot tonnes of the major producers represented only an average of 70% of their installed capacity as against 85½% for Jamshedpur.

5. Our profits were adversely affected not only by the loss of production of about 100,000 tonnes of ingots and by its effect on our costs, but also by the continuous rise in costs due to causes beyond our control.

STEEL PRICES

6. Since May 1969, when we submitted our claim to Government for a price increase of Rs. 116 per tonne, our costs have gone up by about Rs. 30 per tonne owing to such causes as an industry-wide interim wage increase, increases in the prices of refractories, in railway freights and excise duties on fuel oil and import duties on spares. These further increases, except in respect of wages, have not been taken into account by Government in announcing, with effect from the 1st January 1970, the price increase of Rs. 75 per tonne which, on our product-mix will come to about Rs. 71 per tonne. This increase, of course, applied to only the last three months of the year.

INFLATIONARY INCREASES IN COSTS

7. The loss of production of steel by the industry as a whole, fortunately only a relatively minor one in our case, and the constant increases in costs, attest to the exceptional difficulties met by industry in our country in maintaining full production and controlling costs. The stage has unfortunately not yet been reached in India, as in more advanced countries, where maintaining or increasing production according to plan presents no difficulty, except of course in times of labour strife which in the steel industry abroad is relatively rare. While industries abroad are also plagued by continuous inflationary increases in costs, these are in most countries much less severe than here and can be recovered from increases in prices without the need for prior Government approval, market forces being the determining factor in fixing prices. The following figures of increases in some of our important items of costs over the last five years reveal the extent to which inflation is hitting Indian industry.

The cost of coking coal has risen by 50%, of limestone by 40%, of spelter by142%, of refractories by 36%, of stores by 42%

I have every hope that within a year or two we shall be able to re-establish full production, but there are no signs as yet of a stabilisation of prices and costs in our country With continuing inflation in the country we must expect the increase in price we have been allowed this year to be further eroded by increases in costs, such as a further increase in wages which may be granted at the conclusion of negotiations now in progress for the whole steel industry. These factors will, I hope, be taken into account by those shareholders who may be tempted to make their own calculations of the likely rise in the net profits of the current year resulting from the application of the price increase to the whole year.

GOVERNMENT'S POLICIES

8. Although our financial position has remained strong in the sense that our debt/equity ratio is exceptionally favourable, the inadequate prices allowed to the steel producers have denied to us the resources to plough back into the renovation and expansion of our facilities, a sine qua non of any healthy development whether in the Public or the Private Sector. The Public Sector, however, can, whatever the financial results of its operations, look to Government for additional funds required for modernisation and expansion. The Private Sector must rely wholly on its own resources and its capacity to borrow and raise further capital. I regret to say that the steel industry continues to suffer from Government's wholly misconceived and damaging policy of keeping prices earned by the Indian producers below world levels and, at the same time, charging a heavy excise duty of about Rs. 150 per tonne on a product which they and everyone else recognise as being, with power, the key element of industrial development.

WORLD AND INDIAN STEEL SUPPLY POSITION

9. The recession in the demand for steel which prevailed in India two years ago has totally disappeared and India now shares in the present world phenomenon of an acute shortage of steel, particularly in flat-rolled products and quality steels. Today, the writing on the wall is only too clear that in the near future there is going to be a severe shortage of all types of steel, which will inevitably restrict the growth of industry, aggravate inflationary trends already rampant in the country, and cost heavily in foreign exchange both in imports of steel that should have been made in India, and in the loss of exports.

10. It is true that Government plan substantially to expand the country's steel capacity in the coming years by the construction of a number of new plants, all in the Public Sector. But this is an extremely slow process particularly in our country. Apart from the long delay involved in formulating and executing a new steel project on a green-field site, each new plant requires entirely new management cadres and labour force, both of which take many years to build into an efficient organisation. The expansion of existing plants is less costly and much easier to effect usually requiring only a small increase in labour force and practically none in management. While the expansion of the existing Public Sector plants has, for various reasons, been a slow one, no advantage is being taken, in the interests of the country, of the potential of Private Sector plants. A city like Jamshedpur, with its highly developed and experienced managerial and operational skills and large township, could support a much greater rate of production than a mere two million tonnes of steel ingots a year. Thus the country's larger interests are being sacrificed at the altar of ideological dogma.

DECLINE IN PRODUCTION: CAUSES AND REMEDIES

11. The decline in production at Jamshedpur has been due to a number of causes, a major one being the inadequacy and irregular quality of iron produced in the blast furnaces. This itself has been due mainly to a lack of uniformity in the composition of the iron ore received from the mines. In the old days, when the output of the ore mines was low, it was possible, through hand picking, to ensure uniformity in the ore supplied to Jamshedpur. This could no longer be done once the mines were totally mechanised. We expect this problem to be solved by the various measures we have taken and are taking to improve the quality and uniformity of the ore fed to the furnaces and particularly by the use of pelletised ore on the completion next year of the pelletising plant at present under construction at Noamundi. Similarly, improvements are planned in the sintering plant at Jamshedpur, which will also help to improve blast furnace operations.

12. Another important reason has been the deterioration in the condition of the older coke oven batteries, as a result of which we have lost not only production of coke but also of coke oven gas, which is used both in the Steel Melting Shops and in reheating furnaces throughout the plant. All coke oven batteries have to be rebuilt once during their useful life of about 12 years, and later replaced by new batteries. Because of the lack of sufficient funds to undertake all the desirable jobs of replacement and modernisation, our programme of rebuilding and replacement of our batteries has been somewhat slow. An accelerated programme of rebuilding and replacement, including the addition of an entirely new battery, has now been undertaken and shortages of coke should no longer be a cause of low production from 1972 onwards.

13. The problem, however, of the high ash content of Indian coal will remain with us and other producers of iron and will always come in the way of obtaining from blast furnaces in India the high output and low coke consumption achieved in other countries.

14. While the programme we have undertaken to improve the quality and uniformity of raw materials fed to the blast furnaces should, within a year or two, re-establish our output of steel upto the rated capacity of the plant, it must not be forgotten that about half of the plant at Jamshedpur dates back to the twenties. Although most of the old units have at some time or other been overhauled, renovated and partly modernised over the years, they have reached an age when they are no longer capable of continuous production except with an excessive amount of maintenance. The time has come, therefore, when serious consideration must be given to a long-term programme of replacement with modern units, preferably of larger capacity.

THE NEED FOR MODERNISATION

15. We have during the past year given considerable thought to this major problem and have studied a number of alternative possibilities. We hope to come to final conclusions during the course of the current financial year. Such a project would have to be superimposed on the current programme of improvement to our raw material supplies as well as on the normal annual replacements and renewals, which are expected to cost a little over Rs. 100 crores spread over the five years beginning with the current year.

16. The long-term project could itself cost anything between Rs. 100 and Rs. 150 crores, depending on the objectives, which themselves will depend on Government policies, and our ability to finance the project. In the kind of free economy that prevails in most democratic countries abroad such decisions would be simple to reach. In India, the power to make such economic decisions rests wholly with Government, both through their all-embracing licensing system and through their monopoly of sources of finance. Only the power not to make decisions is nowadays left to the Private Sector.

PROPOSED DEBENTURE ISSUE: THE CASE AGAINST CONVERTIBILITY

17. One definite assurance I can give shareholders is that while your Directors will always, as in the past, seek to promote the interests of the country, they will not undertake any major programme of capital expenditure, or accept financing terms, which would be unfair to the shareholders. In keeping with this policy, your Directors have not agreed to attach a right of conversion into ordinary shares to a part of the proposed issue of debentures, referred to in the Directors' Report, which financial institutions sought to impose as a condition of their support to the issue. The Board took the stand that, in the light of the Company's remarkably low debt to equity ratio, of the fact that the debenture issue was not intended to finance a large new project but only a continuing programme of replacement and improvement and of Government's price policy which precluded any appreciable increase in distributable profits out of which the additional dividend on converted debentures could be paid, there was absolutely no case for the issue of convertible debentures at this stage.

18. Furthermore, the suggestion made to us that the right of conversion should be reserved exclusively to the Government financial institutions and not made available to shareholders, was found totally unacceptable. Apart from any consideration of logic and sound financial principle, such a proposal was so unfair to the shareholders, part of whose equity would be transferred to the financial institutions, that the Board could not possibly recommend it to the shareholders. Even if they did, there would have been no chance of its acceptance.

19. A curious sidelight on this matter is the fact that some of the financial institutions concerned are themselves amongst our largest shareholders whose interests as such would be adversely affected for the benefit of others who are not! The institutions are themselves well aware of the financial, legal and technical aspects of the matter, and I hope that the cogent arguments we have placed before them have satisfied them that Government's policy in regard to the right of conversion into ordinary shares of loans advanced by Government financial institutions to the Private Sector was not meant to apply to a case such as this one. If, however, the ultimate decision rests with Government, we can only hope that they too will appreciate the soundness and logic of our arguments. If not, we shall be left with no option but to reduce the magnitude of the debenture issue to such an amount as we can raise from the market without the participation or underwriting support of Government financial institutions. It should be understood, however, that the inevitable result would be to delay the completion of the programme and thus adversely affect the production of steel and therefore the country's interests.

GOVERNMENT FINANCE IN PRIVATE SECTOR INDUSTRY

20. I should like to make it clear that I see nothing wrong in Government investing in Private Sector industry. So long as such investments are made solely in the interest of the institutions making them, they could well be considered as beneficial to shareholders as Government would thus have a direct stake in the company and in its fortunes which were heavily dependent on Government policies and decisions.

21. The case of equity participation by lending institutions stands on a somewhat different footing. Here again, there could be no objection of principle to the lenders seeking to share in the fruits of a project to which their financial support will have made a major contribution. The International Finance Corporation, and other such lending institutions in India and elsewhere, have in some instances asked for and readily obtained rights of participation in equity.

OBJECTIVES AND CRITERIA

22. Thus, if Government's objective is that financial institutions should, in appropriate cases and in their own interest, be allowed to participate in the prosperity they have helped to create in a company through their support, no objection could be raised to their seeking such participation as one of the terms of a loan agreement provided the occasion for it was the formation of a new company or a major expansion or the capital reconstruction of an existing company.

23. If, on the other hand, the purpose is to enable the lender to exercise some control in the operation of the company to which it makes a substantial loan so as to ensure its safety, surely the proper way of achieving it is either by making the loan subject to certain appropriate conditions which would, for instance, require the prior approval of the lender to any major capital expenditure, the launching of a new project, the issue of new capital, etc., or through the appointment of one or two directors on the Board of the company.

24. In those cases in which the lending institutions felt the need to impose certain safeguards, it would probably be against their interests to take shares which would offer them no security, instead of loans which would, and which might even give them a lower return.

25. In cases where participation is sought to be achieved by means of a conversion right attached to a debenture issue, to be exercised at a later date, I suggest the following conditions should apply. The first is that convertibility should be sought only when the debt/equity ratio of the company concerned is considered to be on the high side and needs to be rectified by an injection of fresh equity capital, and when the loan is for a purpose which is expected to increase the profitability of the company and thus enable it to pay dividends on the enlarged capital. The second condition is that any issue of convertible debentures must be offered in the first instance to all equity shareholders. I have no doubt that if such guidelines were issued by Government and the lending institutions were then left free to operate in their interests within those guidelines, there would be little cause for disagreement on either side.

26. I would therefore urge Government to identify and publicly clarify their objectives in this important matter, which has not only created a good deal of worry and suspicion in the minds of investors and management of Private Sector companies, but acts as a disincentive to fresh investment in industry at the very time when Government themselves are worried at the lack of adequate investment for industrial development in the country.

ZAMINDARI MYTH

27. The Directors' Report includes a reference to the recent amendment enacted by the Bihar Legislature to the Bihar Land Reforms Act of 1950, with the object of abolishing the so-called "Tata Zamindari" over the 25 square miles or so on which stand the Steel Works, other industrial factories and the city of Jamshedpur itself.

28. I referred to the matter in my Statement two years ago. The action now taken by the Government of Bihar for political reasons under pressure from the Communist Party, on whose support the present Government of Bihar depends for survival, is potentially of such serious consequence to the Steel Company and to the people of Jamshedpur, universally recognised as one of the most beautiful and best administered towns in the country, that I would have liked to have made a full expose of the matter to the shareholders. All I can say, however, at this stage is that it is our firm intention to challenge in Court the validity of the Bihar enactment as soon as it becomes effective, and that the matter is therefore likely to be sub-judice by the time this Statement is published. In the circumstances, it would be improper for me to discuss the matter here and I hope shareholders will understand the necessity for me to maintain silence on the subject.

LABOUR RELATIONS

29. It is opportune, in reviewing the affairs of the Company's operations in a year which saw a serious outbreak of labour strife at Jamshedpur, to express gratification at the fact that the Steel Company itself and its employees remained totally free from the trouble created elsewhere by selfish men for political purposes. Your Company, directly or indirectly, employs by far the largest number of workers at Jamshedpur. Although they come from every part of India, they are first and foremost citizens of Jamshedpur. To many of them, whose fathers and grandfathers have worked for the Steel Company, Jamshedpur is the only home they have ever known and their job in the Steel Company the only one they have ever had. Unlike the workers in other factories more recently established at Jamshedpur, whose roots are therefore not so deep in its soil, TISCO workers, belonging to many different States, religions and communities, have coalesced into a remarkably stable, mature and responsible industrial community and have maintained a degree of social, industrial and communal peace and harmony unique in the country today. To their everlasting credit, they were responsible for not a single of the 17 million productive man-days lost through industrial conflict in Indian industry last year. Considering happenings elsewhere and the serious loss caused by them to the nation, the employees of the Tata Iron and Steel Company deserve both our and the country's gratitude. I am happy to take this opportunity to assure them that the Company's Directors and Management recognise and appreciate their spirit and good work and will continue to promote and protect their interests. I would like as usual also to thank the management and staff of the Company for the good and hard work they have put in during the year.

END OF AN ERA

30. The year under review ended 62 years of management of the Company by Tata Industries and its predecessors, Tata Sons. It would serve no purpose to discuss once again at this stage the merit of the action taken by Government to abolish an institution which has been the principal instrument of India's industrialisation over a period of nearly a century, nor would it be proper for me, as Director for 44 years and Chairman for 32 years of your erstwhile Managing Agents, to refer to their services to your Company. However, as we look back upon the long and chequered history of the Steel Company and the many arduous years of exploration and preparation undertaken prior to its formation by Jamsetji Tata, his sons and lieutenants, I feel it is fitting that we should pay our tribute to the memory of Dorab Tata, Ratan Tata, R.D. Tata, B.J. Padshah, Nowroji Saklatvala, John Peterson, Ardeshir Dalal and John Matthai. These men are now no more, but in their lifetime played a major role either in bringing the Company into existence near the turn of the century and nursing it through its early vulnerable years, or in saving it from disaster after World War I, and finally in guiding it with devoted care to its present pre-eminent position in Indian Industry. Of the personal recollections I have of the part played by these men in the history of this great national enterprise, perhaps the most characteristic is that they all shared the feeling that in serving the Steel Company they were serving the nation.

31. I am glad that of the old-timers who played an important role in building up the Company, we still have with us Sir Jehangir Ghandy, who served the Company with distinction for fifty years, and whose reappointment as a Director is before you.

32. I consider it a great privilege to have been personally associated with nearly all of these able and dedicated men from whom I learned much and on whose early example and advice I relied when my turn came to assume the Chairmanship of the Company and of its Managing Agents in 1938.

33. Throughout the 32 eventful years which followed, the Company passed through many trials and tribulations, but always continued to maintain the highest traditions of integrity and service to the nation. Those of my colleagues who were concerned with its management and I have received nothing but kindness and courtesy from the shareholders. In taking this opportunity to express our gratitude for all the cooperation extended to us over these many decades, may I assure you that, although Tata Sons and Tata Industries are no longer your Managing Agents, their concern for the welfare of the Steel Company remains undiminished and they will continue to do everything in their power to promote the interests of this great enterprise which they had served for so long.

1970-79

The Era of Closed Economy

Chairman's Statement for the year 1970-71

Bombay, 15th July 1971

THE YEAR'S RESULTS

The results for the year under review, although marginally better than for 1969-70, reflected little change in the state of the Company and, incidentally, in the Industry as a whole. By and large, the same deficiencies and obstacles to better results continued to prevail.

2. We are still some way away from re-establishing full rated production and reaping the fruits of the remedial measures we have taken in the past few years. The completion two years ago of the long-term programme of modernisation and mechanisation of our ore mines, and the commissioning this year of the pelletisation plant should lead to an improvement in blast furnace operations and in the output and the quality of the iron made.

3. The other impediment to higher production, namely, the inadequacy of coke and its high ash content, will be with us for some years. Until we complete the programme of colliery expansion and modernisation, we cannot ensure from our own collieries the totality of our requirements of washed coal, lower in ash than the 17% to 18% on the average we have to live with today. Such coal results in a coke with an ash content as high as 23% to 24%, probably the highest in the world. This not only reduces iron production by compelling a higher proportion of fluxes charged in the furnaces, but also greatly increases, at considerable cost, coke consumption per tonne of iron. Because of the use of low ash coal, coke consumption in Japan averages 450 kg. per tonne, while ours is about 900 kg.

4. Our greater and more immediate problem today, however, lies in a severe shortage of coke, arising primarily from the setback we have suffered from last year in the condition of our older coke oven batteries, which has reduced our coke output by some 20% from our highest output in 1968-69. While we have been able to make up the deficiency partly by purchasing coke, this is now becoming increasingly difficult because of growing scarcity and rail transport problems arising from the disturbed situation in the eastern region.

5. Our coke supply position will improve from next year with the completion of the sixth battery, but full supplies of coke from our own batteries will be permanently assured only four or five years hence when the older batteries have been replaced by new ones.

MODERNISATION PROGRAMME

6. While the rebuilding of our coke ovens and the commissioning of the pelletisation plant will remove the main obstacles to full production of iron from which we suffer today, we must face the fact that our steelmaking and rolling facilities at Jamshedpur, other than those put up under the Two Million Ton Programme twelve years ago, are getting old and that the time has come when a major programme of modernisation in those areas, possibly with some measure of capacity expansion, cannot be long delayed. I mentioned this subject in my Statement last year and told you that we were considering such a programme, on which we hoped to come to a final conclusion during the course of the year.

7. As such a project is to be superimposed on the existing programme to spend over Rs. 100 crores over the period 1970-75 on the pelletisation plant, the replacement of the coke ovens, the collieries project, and the usual normal annual replacements and renewals of plant and machinery, the financing of this earlier programme had to be ensured before a large fresh commitment could be considered.

8. Government's approval is still awaited for the issue of Rs. 20 crores of debentures, which formed an important part of the scheme to finance the current programme. As the guidelines covering such issues of debentures have now been published, I hope approval will soon be given to this issue being made and underwritten by the public financial institutions.

FUTURE OF THE PRIVATE SECTOR

9. These guidelines are illuminating and add one more stroke of the brush to the canvas on which is being painted the future of Private Enterprise in India. From that picture, though unfinished, clearly emerges the plan to bring the Private Sector under an ever-increasing degree of ownership and managerial control of Government.

10. During the past twenty years, the freedom of action and the scope of operation of the Private Sector has been subjected to a gradual but continuous process of erosion in the course of which Government have achieved a measure of control and ownership of the means of production and distribution, which would have been inconceivable to any of us if introduced all at once at the start and which is unprecedented in any country other than those under totalitarian rule.

11. The process of erosion is now visibly accelerating, and, if continued at the present rate, must inevitably result, within a very few years, in the virtual disappearance of the Private Sector as an effective instrument of national development, in all but small scale activities. Already a pattern has been set, which goes far beyond the mixed economy which Government and Parliament had selected as the right one for the country and which we ourselves fully supported.

12. On the one hand, practically every significant freedom of decision and action has been taken away from the owners or management, namely: the choice and size of the project undertaken, the location of the factory, the form and remuneration of top management, the company's capital structure, the selling price of the product, etc., all of which are now subject to Government approval. Even a shareholder's right to vote his own shares has been taken away from him and transferred to Government, if he has pledged them to a bank against an overdraft of Rs. 50,000 and over.

FINANCIAL MONOPOLY

13. On the other hand, by the nationalisation of Banks and Insurance, and by the imposition of confiscatory rates of taxation on private wealth and income, a Government monopoly has in effect been created of loan finance and, ultimately, of investible funds too. Already Government have become the principal shareholders of most of India's large scale industrial concerns and may be expected to acquire majority control within a few years.

14. The guidelines issued to Government financial institutions, which extend over twelve pages of detailed directives and recommendations, make it clear that, in pursuit of their long-term plan of bringing the Private Sector under total Government control, this financial monopoly is to be used to acquire a further measure of ownership control over Private Sector companies.

15. My purpose in calling attention to the pattern that is emerging from Government's policies and actions in recent years. is not to protest against it, let alone contest their or Parliament's right to lay their hands so heavily on our few remaining freedoms, for, as loyal citizens of India, it is our duty to obey the laws enacted by Parliament and to cooperate with Government, if for no other reason than that we have no alternative if we wish to live and work in our country and serve it.

16. But every thinking citizen of India, rich or poor, in business or in professions, employed or unemployed, has a duty to himself, his family and his country, to seek to understand, by the exercise of his own mind and judgement, the true significance and consequences of the policies followed and the steps taken by Government in managing the country's economy. For those policies and steps will have a direct impact on the livelihood and living conditions of every citizen and his children's children.

17. I for one believe that our Government means well. I believe in the leadership of our Prime Minister as the only one able to guide the country through the immensely difficult and dangerous times and events through which we are passing. But I find it difficult to reconcile the public statements on economic policy made by the Prime Minister herself, or by responsible Ministers and officials of Government, with the lengths to which, and the speed at which, our country is now being driven on the road to economic totalitarianism.

18. Considering that our Prime Minister and her colleagues are staunch democrats, strongly opposed to totalitarianism, one must assume that, in their view, the socialist policies they are following can be effectively implemented within the framework of Parliamentary Democracy as we know it. This is, in fact, the rock on which, I fear, their plans will founder, for such economic and fiscal policies cannot succeed without a degree of regimentation which can only be achieved by force.

A PARALLEL ECONOMY

19. A symptom of resistance and rejection is already clearly visible in the growing black market which is increasingly concealing the wealth and income of people. It is estimated that the annual drain of funds into the black market runs into several hundreds of crores. It is clear that under the impact of fiscal policies which spell ruin to honest tax-payers and wealth to tax evaders, a parallel economy outside and beyond the control of Government is being established. Can this kind of economy bring about the prosperity and welfare of our people? Obviously not. But the point is that it can only be suppressed either by a reversal of the policies which create it, or by ruthless action incompatible with a democratic regime.

20. In considering these various aspects and consequences of Government's economic policies, one should not lose sight of the prime objective before the country which, in the striking words of the Prime Minister, is to remove poverty (Garibi Hatao).

IMPERATIVE OF GROWTH

21. Up to now, most of the measures taken by Government to redeem the election pledges of the Party in power, have been directed more at promoting a socialist image than at economic growth. But poverty can only be removed by increasing the wealth produced by the nation, and this can be achieved quickly only by harnessing to the task all available productive resources and energies whether in the Public Sector or in the Private Sector. Government has at its disposal ample means and powers to ensure that any increase in wealth so created is used for the benefit of the many and not for that of the few. To renounce opportunities for more rapid industrialisation and increased production on theoretical grounds is a cruel injustice to the hundreds of millions of our people living in poverty and clamouring for a better life. We are running out of time and can no longer afford to fritter any of it away on the barren discussions and the resulting endless delays which have been retarding the country's progress upto now.

22. To those shareholders who might feel that this discourse on economic policy is hardly relevant to their company's immediate interests and prospects, may I point out that it is very relevant indeed to the dilemma we face today in coming to a decision whether to go ahead with a new long-term programme of renovation and, if we do, to the problem of financing it.

GUIDELINES TO FINANCIAL INSTITUTIONS

23. The recent guidelines to the financial institutions indicate clearly that any further borrowing to finance a major scheme of modernisation partly involving incidental expansion would lead to the shareholders being asked to part with some of their equity to the financial institutions and to the Company's management being brought under their supervision.

24. Whatever view one may have about these guidelines, I hope that the financial institutions, who have proved themselves to be amongst the most practical minded and knowledgeable of Government agencies, will interpret and apply them in a fair and constructive manner. In particular, whenever a loan is made to include a conversion right, its terms should be fair to the shareholders. If I single out this point for special mention, it is because I am surprised and concerned to learn that at least in one instance of a loan made subject to a conversion right, the price at which the shares are to be issued on conversion if the right is exercised is appreciably lower than the market price of the share prevailing at the time of the loan. This is unfair to the shareholders and contrary to the universally accepted principle that the price at which a conversion right is exercisable is invariably higher than that prevailing in the market at the time the loan or debenture issue is made.

25. This is as it should be, for the lender is protected from any risk and will obviously exercise his option to convert only if the increased profitability of the concern makes it worthwhile for him to become, in fact, an ordinary shareholder instead of a secured creditor. To ask for the right to obtain such shares at a price which may be much lower than that freely quoted in the market at the time would be grossly unfair to existing shareholders, both in depriving them of a part of their equity and in depressing the value of their shares.

TISCO'S FUTURE ROLE

26. I am sorry, therefore, that for these reasons, and others, it has not been possible as yet to formulate a detailed scheme of further modernisation to be placed before Government and the shareholders. In the light of recent experience, I am reluctant to prophesy when any project is likely to materialise, for prophecies have a tendency to rebound to the prophet's discomfiture. As the country is, and will continue to be, short of steel for many years, however large the public sector may become, we must surely hope that, between our desire to ensure the continued health and growth of this great enterprise which has served the nation for sixty years, and Government's sympathetic understanding of its problems and needs, the Steel Company will be permitted to contribute further to the industry's development without having to make unjustified sacrifices for the privilege of doing so.

THE BUDGET

27. The recent budget, particularly in its long-term implications, will itself have a bearing on our capacity to spend money on such a project quite apart from the heavy additional burden of taxation it imposes on industry, which, as I have said elsewhere, already generates over 80% of the tax revenues of the Central Government while contributing only 13% of the national income. The immediate withdrawal of most incentives to grow and to modernise is a severe, and, I submit, a totally undeserved blow. But the threatened withdrawal by May 1974 of the development rebate will be particularly damaging. This measure was wisely introduced many years ago in specific recognition of the growing gap, caused by inflation, between the original and replacement costs of an asset. In the case of the steel industry in particular, in which assets are used for a long period, the gap between historical and replacement costs is enormous, in some cases reflecting an increase in the prices of plant and machinery of anything up to 400% over the last 25 years. The development rebate, in effect, gives a company in the priority sector such as ours an additional, allowance of 25% for depreciation with the added advantage of permitting it to be deducted all in one year. I understand that the reason for the proposed withdrawal is that this relief is considered as being unnecessary and unduly generous in respect of new projects. While I do not agree with this view, it is clear that such an argument could not apply to capital expenditure incurred on pure replacement of old equipment. This is very much the case in heavy industry and particularly of our Company, which has a large programme of essential replacements of old plant and equipment ahead of it. The withdrawal of this valuable incentive by reducing the generation of internal funds will result in delaying essential replacements to the detriment of production. I sincerely hope that the Finance Minister will reconsider this harsh decision.

28. While still on the subject of finance, it is appropriate that I should make a reference to the final repayment of the loans totalling

$ 107.5 million advanced to us some fifteen years ago by the World Bank to help us finance our Two Million Ton Programme. This was at the time, and may well still be, the largest loan made by the World Bank to any single non-governmental borrower. At the foreign exchange rate prevailing at the time, the loan amounted to Rs. 51 crores. Taking into account the changes in exchange rates that have taken place since the loans were made, including the devaluation of the rupee in 1966, the total amount repaid by the Company was Rs. 63 crores.

29. We are deeply grateful for the generous support given to us by the World Bank, without which the project could not have gone ahead as it did, and also to the Government of India, whose guarantee of the loans made the World Bank assistance possible.

PRICES

30. As briefly stated in the Report, the increase in price of Rs. 71 per tonne, on our product-mix, granted by Government from 1st January 1970 has already been largely neutralised by increases in costs beyond our control. With the further escalations which have taken place since the close of the year and which may be expected during the current year, and taking into account the additional burden imposed upon us by the recent Railway and Finance budgets, it is clear that, in both the private and public sector plants, little if anything will remain of the benefit of last year's increase in prices. Notwithstanding the political unpopularity of any increase in steel prices the need for it will soon be inescapable if the health of the industry is not to be jeopardised.

31. It is to be remembered that the prices as prevailing today are based on a major review of steel costs as far back as 1962, to which only a part of the cost escalations which have taken place since then have been added. Furthermore, the overheads allowed in total costs for the whole industry were based on the low TISCO capital cost per tonne of Rs. 1,176. This resulted in a depreciation allowance included in prices of only Rs. 60 per tonne or Rs. 9 crores on our 1½ million tonne capacity. Since then our block has increased by over 50% to Rs. 1,830 per tonne as a result of replacements of old equipment by costlier new equipment. The depreciation allowance has, therefore, become grossly inadequate in our case, and even more so in the case of HSL whose present capital costs per tonne are Rs. 1,900 for Bhilai, Rs. 2,200 for Durgapur and Rs. 3,250 for Rourkela.

32. Even if prices are judged by comparing them with foreign prices rather than replacement requirements, the prices allowed to the producer in India are very materially below those earned by foreign manufacturers, with the exception of Japan where domestic prices are, for the moment slightly below Indian prices owing to a severe recession in steel demand. Thus, whereas the prices allowed to Indian producers averaged Rs. 717 per tonne on a representative product-mix, domestic prices for the corresponding product-mix are Rs. 1,243 in the USA, Rs. 1,085 in the UK, Rs. 1,025 in West Germany and Rs. 927 in Australia. At the same time, Government is itself responsible for raising prices to the consumer by continuing to charge a heavy excise duty on steel.

33. We periodically bring these facts to the notice of Government and shall continue our efforts to convince them of the imperative necessity of allowing such a basic industry as steel adequate internal resources to enable it constantly to renew and modernise its plant and to provide for some degree of expansion.

LABOUR RELATIONS

34. I am glad to report that the relations between the management and our employees at Jamshedpur and elsewhere, and with the Tata Workers' Union, remained cordial and co-operative. Jamshedpur thus remains a striking oasis of labour peace and co-operation in a country many parts of which are severely affected by labour unrest and stoppages of work causing an appalling loss of production to the country.

35. On your behalf and the Board's, I thank all our employees at Jamshedpur and elsewhere for their co-operation and good work during the past year, and for the fine example they have set to the whole country.

Chairman's Statement for the year 1971-72

Bombay, 4th July, 1972

25 YEARS OF INDEPENDENCE

I have for some years given up the practice of inflicting upon the shareholders at the beginning of my annual statement and earlier, of my speeches at shareholders' meetings, a review of events and developments of general interest to the economy of the country but not directly concerned with our affairs, as I found that these were amply discussed by the Chairmen of most other joint stock companies, large and small, and because, in any case, the views of spokesmen of the private sector seemed to make no impact whatever in official circles. If I make a brief exception this year, it is because it marks the significant completion of the 25th year of India's Independence.

2. Tragically, these twenty-five years began and ended not only with a major political transformation of our sub-Continent but with great human upheavals, including war, which on both occasions compelled some ten million people to flee in terror from their homes to seek refuge in another land, and brought death to thousands and misery to millions. The recent Agreement signed at Simla by our Prime Minister and the President of Pakistan gives hope that this grievous chapter in the relations between our two countries is now closed forever, and that peace, growing understanding and cooperation will henceforth replace the conflict and confrontation which for twenty-five years caused so much suffering to so many on both sides.

3. In this last of the twenty-five years India bore a burden of refugee relief of a magnitude that no country in the world had ever been called upon to bear; it helped in the liberation of a nation of over 70 million people; it fought a victorious war—mercifully a short one; it bore with remarkable equanimity and success the severe blows which these events inflicted upon its economy; it emerged as a major factor in the Asian power balance, and achieved, under Indira Gandhi, a degree of political integration and stability equalled only by that achieved under Jawaharlal Nehru in the early years of our Independence.

4. It is only right that on such an important occasion we should briefly take stock of our achievements as well as of our failures during these twenty-five momentous years.

ACHIEVEMENTS AND...

5. Politically, we have emerged from our many trials and tribulations as one of the most stable developing countries in the world, confounding in the process the many in India and abroad who feared, or hoped, that we could not survive as a united and politically strong nation.

6. Militarily, we have achieved a capability in manpower, equipment and expertise of a high order and certainly adequate to our defence needs against all but great powers, as well as a capacity for large-scale production of sophisticated military hardware without parallel in developing countries.

7. Economically, we have more than doubled our foodgrains production, more than trebled our industrial production, increased by 25% our real per capita income which had actually fallen in the first fifty years of the century and increased the life-span of our people from 31 to 52 years and their literacy rate from 16.6% to over 29%.

...FAILURES

8. We may derive some satisfaction from these significant achievements, but we cannot overlook the fact that with all the growth and sophistication of our industrial apparatus, we are still today a small industrial power with about one per cent of the world's steel output, one half per cent of the world's exports, and producing in one year no more than what Japan produces in one month; nor the fact that the one per cent annual increase in our per capita income is only one-fourth of the target we set before us when we started planning in 1951; that the great majority of our people continue to live in deep poverty and distress, that unemployment or underemployment continues to rise each year and that, despite the expenditure of some sixty-five thousand crores on development during these 25 years, the standard of living of the bulk of our people continues to be amongst the lowest in the world.

9. Last, but by no means least, we have failed to make any real dent in the rate of growth of our population which, in these brief 25 years alone, has increased by a staggering 200 million, almost the total population of the United States, Western Europe or Soviet Russia.

10. Looking ahead, however, there is no reason to be disheartened or pessimistic about the next 25 years. We now have a versatile industrial base capable of rapid expansion, wide-ranging skills and managerial expertise, a basically sound economy which demonstrated its resilience by the manner in which it absorbed the severe shocks of the past year, and, equally important, we now have a united Government under strong and bold leadership. With such a combination of favourable factors, we undoubtedly have the capability of achieving much faster progress than in the past.

11. While the recent realisation that economic growth, to be meaningful, must make the masses of our people its main beneficiaries, is to be welcomed, I am sorry to say that there is still no sign of any realisation in official circles that the industrial and fiscal policies prevailing today contain major deterrents to rapid industrial growth which alone can provide the financial and material resources to pay for the mass employment and welfare schemes of any anti-poverty programme.

CONCENTRATION OF ECONOMIC POWER

12. Government are still obsessed with the largely mythical bogey of concentration of economic power in private hands which protagonists of the extreme Left have so assiduously and successfully propagated for years. Not content with abolishing the managing agency system, Government have followed the general policy of denying to most individual companies, including small ones which previously were grouped under managing agency firms, opportunities of contributing further to the country's industrial growth. No distinction has been made between companies or groups with an impeccable record of efficiency and integrity and those known for serious malpractices. Because the so-called 'larger houses' represented the largest, most resourceful and most efficient part of the Private Sector, the shrinkage of fresh industrial investment caused by such a policy has resulted in a significant fall in the rate of industrial growth during the past two years. There is now, however, a hopeful indication of a renewed willingness to make use of the material and managerial resources of some of the larger houses in the development of the country's economy, as evidenced by licences or letters of intent recently granted to some of our own sister companies.

13. I believe there has been a real confusion of thought in regard to the true nature and extent of the economic power about which so much fear and suspicion, genuine or politically convenient, has been expressed. With every aspect of large-scale industrial activity almost totally controlled by Government through an all-embracing panoply of controls and regulations, to which is now added a measure of managerial control by Government's monopolistic lending institutions, it is clear that no real economic power is any longer wielded by industrial management, if by 'economic power' is meant the power to make one's own economic decisions. Deprived of the right to decide what and how much to produce, what prices to charge, how much to borrow, what shares to issue and at what price, what wages and bonus to pay, what executives to employ and what salaries to pay them and. in some cases, what dividends to distribute, directors and top management from the Chairman down have hardly any economic power in our country. Taking my own case, I doubt that there is anywhere in the world outside India any industrial executive in charge of a major enterprise with less real power than I have. In fact, no Government in the world has taken greater precautions to ensure that real economic power is concentrated in their own hands.

14. The confusion, I think, lay in the fact that while Government's restrictive measures have been directed mainly at curbing or destroying managerial freedom, initiative and policy-making powers, thus nullifying the principal advantages of private enterprise management, the real and justifiable target of criticism was, or should have been, the illegitimate accumulation of wealth, particularly in the form of tax-evaded funds in India and abroad and its use for anti-social purposes, including bribery and corruption. I submit that the right policy for a socialist Government such as ours, armed with the immense powers that it has, should be, on the one hand, to take every possible step to curb the acquisition and anti-social use of illegitimate funds and to punish those guilty and, on the other, to release for nation-building purposes all the resources, energies and dedication of those in the private sector whose past record has shown them to be worthy of the nation's trust.

15. I still hope, admittedly somewhat against hope, that this is the policy which Government will one day adopt as being the only one capable of harnessing all available resources to the common effort of achieving maximum growth with maximum social justice.

A DISAPPOINTING YEAR

16. Coming to our own affairs, the results of the year under review were disappointing, as they indeed must continue to be so long as our output remains more or less constant, and, at the same time, the unrelenting rise in costs due to the general and continuous inflation in the country, totally beyond the control of management, is not offset by an increase in prices or savings in costs or a combination of both.

17. Under Indian conditions and particularly in an ageing plant such as ours producing at near maximum, the scope for reducing costs through higher production or greater efficiency is extremely small. Excluding the unlikely possibility of a major technical break-through in the world steel industry which would enable steel to be made much more cheaply, there seems to be no escape from a continuous rise in the cost of producing steel in India, as elsewhere, so long as inflationary forces continue to prevail. Consequently, I can see, over the years, no alternative to a slow but continuous increase in steel prices generally corresponding to that of other industrial products if the health and productivity of this most vital of all industries is to be preserved. That is hardly the case today, if by a healthy and productive plant we mean one maintained at a peak of efficiency by continuously replacing worn out or obsolete parts and incorporating improvements in equipment, processes and techniques as they become available.

18. All this costs far more money than available from allocations to depreciation, in view of the enormous increase in the cost of new equipment over the historical cost of the equipment it replaces. In a sound enterprise, the additional funds required must come mainly from retained earnings, temporarily supplemented in times of peak expenditure by borrowings. In our case, because of inadequate steel prices, there have been for many years hardly any extra earnings left to plough back into the plant. The development rebate has materially helped to narrow the gap in resources. Its impending abolition will now leave depreciation allocations as virtually the only source of replacement finance unless more reasonable prices are allowed to the industry.

STEEL PRICES

19. One must surely hope and believe that sooner or later Government will come to realise that the policy they have been following of squeezing more and more out of the steel consumer in the form of excise duties, while maintaining prices to the producers at a level which is not only substantially lower than in other countries but leaves no margin for essential maintenance, let alone expansion, is a self-defeating one which in the long run can only result in dwindling production and rising costs.

20. Iron and steel are basic raw materials to all industries and there can be no justification for Government to enforce uneconomically low prices on producers of steel in both the Public and the Private Sectors, jeopardising their efficiency and health in the process, while extracting an additional 40% from the consumer in the form of excise duties.

21. I am sorry that we have failed upto now in our repeated efforts to convince Government of the unsoundness as well as the unfairness of their steel pricing policies. The situation is now reaching a critical stage. Steel prices allowed to the producers, as distinct from those charged to consumers, were last increased in January 1970, by an average of Rs. 71 per tonne on our product-mix. Since then, further increases in costs beyond the control of management have been of the order of Rs. 113 per tonne.

22. We, along with the Public Sector, are continuing our efforts to convince Government of the urgent necessity of an upward revision in steel prices allowed to the producers. If they are anxious to hold the price line for the benefit of steel consumers, the increase to producers could be offset by a corresponding reduction in the excessively heavy excise duties. We can only hope that Government will decide, without delay, to place this most basic of all industries on a strong and safe footing.

PRODUCTION

23. On the production side, I believe that we have at last reached the stage where we may now expect some real progress from the number of steps we have taken in the past year or two to re-establish full production, including those to increase coke, sinter and pellet availability. We, therefore, hope to do better in the current year, but only in 1973-74 can we expect to reach or approach the rated capacity which we last achieved in 1967-68.

24. Our life is not being made easier by constant interruptions in power supply which play havoc with the operations of continuous process plants. We calculate that directly or indirectly due to such interruptions and shortages during the past year, the Company has lost over 20,000 tonnes of steel.

25. The continuing shortage of wagons is another difficulty which is ever with us, causing not only a certain amount of dislocation but also the need for carrying larger inventories, which in turn involve higher interest charges.

NEED FOR REPLACEMENTS

26. Even if, as I hope will happen one day, all such problems are overcome, we must, as I said last year, face in the long term the inevitable consequences of the increasing age of our plant, about half of which dates back to the early 1920s and is therefore about fifty years old. We have in the past been able to maintain its productivity, although at an increasing cost each year. But this cannot be done for ever. Any major scheme of modernisation or expansion is a long-drawn affair in a steel plant, which takes five years to mature fully. A decision on a long-term programme of action, involving major schemes of replacement, cannot be delayed much longer if production is not to fall once again. We are, however, faced with the basic problem that, owing to inadequate steel prices, the resources available to us are wholly inadequate for the task.

HOLDING COMPANY

27. In this context, a coming event of great potential importance to your Company is Government's proposal to create a Holding Company to co-ordinate, control and generally supervise the functions and development of the steel, coking coal and refractories industries of the country.

28. The basic objectives of securing a more rapid and rational growth of the steel industry, of increasing its efficiency by integrated planning and supervision and ensuring that its full requirements in raw materials, fuel, power, replacements and other inputs are met, are to be welcomed.

29. Whether, however, these objectives can best be achieved by concentrating power, functions and authority in a Holding Company, superimposed on, or replacing, the existing decision-making machinery of Government, or whether they are more likely thereby to be frustrated through the complications and delays that such a scheme might add to the present highly cumbersome and time-consuming machinery, is something which only experience will tell.

30. Your Company will, I hope, be represented on the Board of the Holding Company and I can assure Government that within that Board and outside it, we shall do everything in our power to help in making the working of the Holding Company a success, in our own interests as well as those of the industry as a whole.

EXPANSION

31. One of the prime tasks of the Holding Company, as it is today that of the Steel Ministry, is to plan and assist the further growth of the steel industry. References have been made from time to time in the Press to the possibility of an expansion of our own plant at Jamshedpur. I had myself in a previous Statement to the shareholders pointed out that the infrastructure and organisation existing at Jamshedpur could support a considerably larger capacity than the present two million tonnes. If it were proved that additional capacity can be created at Jamshedpur quicker and more cheaply, and operated with greater efficiency than on an entirely new site, and if Government were to require that this be done in the national interest, obviously we should be prepared to respond. In fact, we would have little choice in the matter.

32. There is as yet no specific expansion project for Jamshedpur within our Company or, to the best of my knowledge, within the Steel Ministry. All I can say at this stage is that we are engaged in a detailed study of the possibility of formulating a viable project. I can assure you that any scheme that emanates from us will not overlook the interests of the shareholders.

33. The most important aspect of any possible scheme of expansion of capacity at Jamshedpur is the question of how it could be financed and its impact on the shareholders' interests. The capital cost of a major expansion programme would be so large that, with the monopoly of investible and lendable capital which Government have created for themselves, Government funds in one form or another or Government-guaranteed funds would be virtually the sole source of finance for the project. These would be subject to convertibility rights in accordance with the guidelines recently issued by Government to their financial institutions and now in force.

JOINT SECTOR

34. Considering that directly or indirectly, Government already control 40% of the voting rights in the Company, it is clear that any appreciable increase in their shareholdings would automatically convert the Steel Company into a "Government company" as defined in the Companies Act, and into a Joint Sector company under any possible definition of the Joint Sector about which we hear so much today. In fact with Government as the Company's largest shareholder, with the right to have three representatives on the Board, with veto powers in the hands of Government or of the financial institutions, and with production, sales and prices wholly controlled by Government, the Steel Company is for all practical purposes already in the Joint Sector.

35. This situation, which has gradually crept upon us over a period of years, whereby the control of the Steel Company has virtually passed into Government hands, is one which need not arouse excessive concern or despondency amongst shareholders. The very fact that Government have already such a large stake in our Company—a stake which, in a major expansion, would become a majority of ownership—should normally ensure a greater interest in its welfare than if they had no investment in it at all.

36. I realise that this may not be an argument that will greatly impress shareholders who are well aware of the step-motherly treatment in the matter of steel prices which Government have meted out not only to the Private Sector of the industry but also to Public Sector plants which, as a result, have operated continuously at a loss. In this business, however, one must take a long-term view and I cannot but believe that the time will come when Government will realise the imperative need, through a fair and rational price policy, of safeguarding the health and economic viability of the country's most vital industry.

37. Recent amendments to the Constitution and the use sought to be made of it to justify a scheme of compensation to the shareholders of the nationalised general insurance industry, which can only be characterised as confiscatory, would seem to confirm the extremely low value attached to shareholders' legitimate rights and interests by those in power. Shareholders may, therefore, feel some doubt as regards the treatment this Sector may now expect in our country.

I believe, however, that it cannot be the real intention of our Government to cause heavy and unjustified loss to those who, over the years, have done so much to build up India's industrial and commercial base, as the Bill for nationalisation of general insurance would seem to indicate, and that the Bill which is now before a Select Committee will be favourably amended. If, on the other hand, the Bill were to go through in its present form, there could be no other interpretation of it than as part of a deliberate programme of extinction by expropriation of private ownership in business and industry. The events of the next few months will clearly show what will be in store for us. Until then,

I prefer to believe that private enterprise of the right type, managed with honesty and social consciousness, either by itself or in association with Government, has a large and growing role to play in promoting the economic progress of the country and in serving the interests of its people.

JAMSHEDPUR LAND TENURE

38. The shareholders were informed in previous Directors' Reports and Chairman's Statements of the Bihar Government's persistent attempts to treat the Company's rights over the land, acquired many years ago under the Land Acquisition Act for the purpose of establishing a steel plant and allied industries at Jamshedpur, as zamindari rights, and to amend the Bihar Land Reforms Act of 1950 so as to bring our lands under the purview of that Act.

39. As mentioned in the Directors' Report, the Bihar Land Reforms (Amendment) Bill, 1972, has been passed by the Bihar Legislature and will become law when it receives the President's assent. The main object of the Bill is to delete from the Act the amendment introduced in 1961 which expressly provided that the Act would not apply to lands acquired for industrial purposes like those held by our Company. The most objectionable feature of the Bill is that it seeks to give retrospective effect to the amendment. Under the retroactive provision of the Bill, the Company's lands may be deemed to have vested in the State from 1956, when the Bihar Land Reforms Act, 1950 was sought to be made applicable to them by a Notification.

40. It is for the first time in the history of India that lands used for admittedly industrial purposes have been sought to be acquired by the State under agrarian reform law. Again, our plethora of laws affords no parallel to the Bihar Bill, which gives retrospective effect for as many as 16 years in supersession of the earlier law which had expressly declared that the agrarian law could not and did not apply to the lands of the Company. Where the legislature intends to bring about a certain change and the law is found to have missed fire, subsequent validating laws have been passed with retrospective effect, but there has never been a case like the present one where legislative intention, specifically expressed in the earlier law, has been reversed with so many years' retrospective effect. A measure such as this would serve as a disastrous precedent and have grave consequences on legislative practices and the rule of law.

41. While I have, in this Statement, been critical of certain policies of Government, it is with pleasure and gratitude that I acknowledge the assistance and cooperation we received throughout the past year from Government in the Steel Ministry which was most helpful in tackling some of our current problems and difficulties.

42. A reference has been made in the Directors' Report to the death of Sir Jehangir Ghandy last April. I would like to add my personal tribute to this esteemed colleague and friend of mine with whom I had been closely associated for 45 years in the work of your Company. We propose to perpetuate his memory by naming after him the fine new hospital building that is under construction next to the Company's old Main Hospital. I am sure the shareholders will wholeheartedly endorse this proposal.

LABOUR RELATIONS

43. I am glad to be able to report that relations between management and labour at Jamshedpur and elsewhere and with their accredited Unions remained excellent throughout the year. Great credit is due to both the Tata Workers' Union and the management at Jamshedpur for this continuing state of cooperation and cordiality. On behalf of the Board and the shareholders, I take this opportunity of expressing to both our sincere thanks for their cooperation. The relationship established and maintained year after year at Jamshedpur has been a model for the whole country and shows that, with goodwill, sincerity and dedicated effort, there is no reason why conflict and work stoppages resulting in a grievous loss of production should prevail in our country, as it does in so much of Indian industry at so great a cost to the country.

Chairman's Statement for the year 1972-73

Bombay, 13th July, 1973

I must first refer to the tragic death of Mr. Mohan Kumaramangalam, Minister for Steel and Mines, in the fatal aircraft accident that took place in Delhi on the 31st of May.

2. To most shareholders of the Steel Company, Mr. Kumaramangalam was probably only known as a brilliant lawyer, a leading member of the Union Cabinet to whom the fate of the Indian steel industry, including that of your Company, had been entrusted by the Prime Minister, and the author of the concept of the holding company for public sector enterprises, of which the Steel Authority of India (SAIL) was the first to be established. Those, however, who, like myself, knew Mr. Kumaramangalam well and had worked closely with him, could appreciate the true character and outstanding abilities of this remarkable and dynamic man.

3. Although Mr. Kumaramangalam believed in a form of socio-economic organisation in which, by definition, large-scale private enterprise has no significant role to play, he was far from dogmatic on the subject. A realist, he was primarily interested in results, whether the means necessary to achieve them conformed wholly with his ideological preferences or not, and in the search for the right practical decision he was always ready and willing to listen to views different from his own. Once he came to a conclusion in any matter, he took decisions boldly and acted on them with dispatch and determination. He was indeed a rare and refreshing exception in a Government in which, in recent years, the decision-making process in economic matters has at times reached a state of near paralysis. To us in the Steel Company he proved a most decisive and helpful Minister to whom one could turn for advice and assistance in overcoming obstacles to higher production. We cannot but mourn the loss to the country of a warm, honest, and immensely capable man. Our sincere sympathy goes to the Prime Minister for the grievous loss which she and her Government have suffered in his death.

4. Before commenting on our own affairs. I must once again violate my desire not to renew the practice I used to follow in earlier years of inflicting on the shareholders general observations on the state of the economy for, so grave are the perils, and therefore the challenges, that confront us today, that as Chairman of the largest private sector Company in the country it would be remiss of me not to offer some comments and suggestions.

CHALLENGE OF THE ECONOMIC CRISIS

5. That we are in trouble is only too clear from the continuous and growing shortages that plague the country and its people, from the alarming and seemingly uncontrollable rise in prices, particularly of consumer goods and from the woefully low rate of growth of our national product which, combined with the relentless growth of our population, has brought our per capita growth to the vanishing point.

6. We no longer have a sizable buffer stock of food grains and can no longer hope to be easily rescued by large-scale imports, both because they are scarce today and because world inflation has made imports so costly as to be beyond the capacity of our limited foreign exchange resources to finance without jeopardising our other essential requirements. Because the massive doses of deficit financing and taxation to which we resorted during the past few years were largely disbursed on non-developmental expenditure, the resulting inflation condemns us to all the penalties of inflation without any of its advantages.

7. One thing that is absolutely clear is that any policy which, for whatever reason, discourages investment in, and the growth of, basic producer and consumer goods industries, can only result in greater shortages, and therefore greater inflation. No matter how good a system of distribution may be, and we have yet to see one in our country, it must inevitably break down in a regime of shortages.

NEED OF THE HOUR: INCREASED PRODUCTION & INVESTMENT

8. In the critical economic situation in which we find ourselves, salvation can only come from a rapid and massive increase in production, equitably distributed. What is needed is a rational, innovative, undogmatic package of industrial policies and measures calculated to promote production and investment in the priority industries, coupled where justified, with fiscal relief again directly geared to promoting investment. If, to achieve these objectives, the prices of basic products, which have been up to now kept below economic levels, rise to some extent, it should not be forgotten that as things stand today, the consumer pays black market prices for scarce commodities and most of them are scarce. Only policies and measures directed at increased production and investment can destroy the black market and eliminate the shortages on which it feeds and which have bedevilled the economy for so long.

9. At no time in the past twenty-five years has there been a greater need for courageous, clear-thinking and decisive action. One favourable monsoon will not remedy the scarcities which have accumulated during eight years of nondevelopment, but it can give us breathing time to introduce and pursue a series of policies and managerial measures that will restore our productive assets to a fuller utilisation and make possible fresh capital investments in new productive capacity without which there can be no economic growth.

NOTE OF WARNING

10. While this is hardly the place to suggest specific policies and measures, I may be forgiven for uttering at least a note of warning to the private sector of industry and trade on the one hand, and to our policy-makers on the other.

11. I urge the former to realise that in the present temper of the country and in the scarcity conditions prevailing over almost the whole range of consumer products, profiteering, directly or circuitously, and other malpractices, apart from being morally wrong, will be fatal in the long run to those indulging in them by unleashing against them forces and reactions from the consequences of which there will be no return.

12. To Government, I would plead that a reasonable rate of economic growth, with social justice, can never be achieved under a set of policies which restrain investment in the name of combating inflation or of curbing a mythical concentration of economic power in private hands. I once again repeat that there can be no detrimental concentration of such power in an economy operating under the all-embracing regime of controls, licences and permits which exists in our country.

ANOTHER DISAPPOINTING YEAR

13. Coming to our own affairs, I am sorry that once again I have little cheer to bring to the shareholders through the pages of our Annual Report, Accounts and this Statement. For us the year 1972-73 has been merely a frustrating repetition of earlier frustrating years. Not only have we failed to achieve the increase in production we had planned and worked for, but our profit margins have continued to be eroded by a relentless increase in costs, only partly compensated by the increase in prices sanctioned by Government in July last year.

14. So far as production is concerned, although we have made substantial progress in our sustained programme for improving the quality and uniformity of our raw materials and in the replacement of our coke ovens and other equipment we have not been able to surmount all the obstacles to higher production of steel which, in fact was, last year, the lowest since 1961-62. The availability of surplus ingots from Hindustan Steel enabled us, however, to make up for the deficiency in our ingot production and to achieve a fairly satisfactory output of finished steel.

SHORTAGES OF POWER, COAL AND TRANSPORT

15. Unfortunately, the situation took a serious turn for the worse after the close of the year under review, when shortages of power, coal and rail transport from which, in fact the whole country has grievously suffered in the past few months, severely affected production at Jamshedpur. Interruptions in the supply of DVC power became so serious during the months of May and June that on some days production fell to a fraction of capacity. The situation has somewhat improved since then, but it is clear that even if power, coal and rail transport were to be fully available for the rest of the year, which is doubtful to say the least the current year's production will once again be below our expectations.

16. While shortages in hydel power arising from inadequate rainfall may be considered an act of God, it is nothing less than tragic, and in many ways inexcusable, that the economy of the country, already hard hit by the loss of food production and the consequences of years of ever-growing deficit financing, should have had inflicted upon it man-made, and therefore avoidable, shortages of coal and thermal power, which in some regions literally crippled industrial production. The shortages of thermal power were mainly due to low equipment utilisation of existing capacity due to poor maintenance and operation on the one hand and to the investment famine of the last eight years on the other which retarded the growth of capacity.

17. Shortages of coal have been particularly disturbing and, unless quickly eliminated, will again threaten industrial output in the current year and the next. Of all the inputs of industry, none are more vital than coal, electric power and rail transport. I would, therefore, urge, as I did in another context, that in the light of the many difficulties and obstacles to full production faced in our country, our fiveyear plans should include a margin of not less than 15% over estimated requirement in the capacity provided for these three basic infrastructural elements.

STEEL PRICES

18. As regards the profitability of our operations, which naturally depends on the margin between manufacturing costs and selling prices, we started the year, as explained in the Directors' Report, with a backlog of uncompensated cost escalation of Rs. 113 per tonne, against which Government granted in July 1972 an increase in price of Rs. 42 per tonne on our product-mix. As this was available to us for only eight months, it amounted to an increase of only Rs. 30 per tonne for the whole year. In the same year, however, our costs further escalated by substantially more than Rs. 30, with the result that our profit margins were further eroded, the effect of which erosion can be seen from the annexed profit and loss account.

19. A lack of profit or an increase in loss in the private sector may, under the strange interpretation of socialism prevalent in our country, be a matter of indifference, if not rejoicing in some quarters. What has unfortunately not been appreciated upto now is that the health, productivity and growth of industry, whether in the private or public sector, cannot be maintained without constant replacements of worn out and obsolete equipment. In capital intensive industries such as ours this requires expenditure, year after year, of very large sums of money. While expansion can be financed largely by borrowings and additions to share capital, replacements and renovation can, in the long run, be financed only from earnings.

NEED FOR REPLACEMENT FINANCE

20. In the era of unrelenting inflation in which we live, the cost of equipment required for replacement of worn out or obsolete assets invariably exceeds their original cost by a very wide margin. Therefore, as I have so often said in the past the amounts set aside for depreciation calculated on original cost are totally inadequate to finance replacements:

21. It is clear, therefore, that if the health and vitality of an industry is to be maintained, it must be allowed to earn sufficient resources, over and above depreciation, to plough back into replacements and modernisation, after paying a reasonable dividend to the shareholders, whether they be Government or individual.

22. In a controlled industry such as ours, adequate funds for replacement must necessarily be provided in the price structure. Unfortunately this has been far from being the case. The prices allowed to the main producers during the past 25 years have been maintained at levels far below world prices, denying even adequate provisions for depreciation, let alone the opportunity for any ploughback.

INADEQUATE DEPRECIATION

23. Ever since 1962, the element in the steel price allowed for depreciation has remained at 5%.of a notional capital cost of Rs. 1,176 per tonne of capacity. On our 1½ million tonnes capacity, this provides only Rs. 60 per tonne or Rs. 9 crores annually. Today the average cost of our block comes to over Rs. 2,000 a tonne, whereas the cost of new capacity and, therefore, of replacements is around Rs. 4,000 per tonne. Thus the deficiency in the prices allowed to the producers on account of depreciation alone has been, in our case, Rs. 40 per tonne, or Rs. 6 crores per year on the basis of the lower figure of Rs. 2,000 and our plant half of which is over 50 years old, has thus been starved of funds for expenditure on replacements and modernisation to the extent of anything upto Rs. 60 crores over the last decade. As during the same period our dividends have been maintained at the same modest level, we can hardly be accused of frittering away on dividends funds which should have been used for replacements and renovation.

24. Year after year, in fact ever since Independence, I have in vain pleaded with Government to adopt pricing policies more consistent with economic realities. For the first ten years or so after World War II, our retention prices were maintained at levels so far below those prevailing throughout the world that at one time they were actually half those at which steel could be imported. Although the gap has narrowed since then, the average prices allowed to the Indian steel producers are still substantially below those earned by steel makers abroad. What is the justification, therefore, for denying to the Indian steel industry economic prices which would ensure its health and efficiency and still leave the Indian consumer better off than his counterparts abroad?

25. It is, therefore, difficult to understand why, to this day, Government have insisted, against all logic and commonsense, on adhering to such an unsound price policy. That they have not done so in order to protect the consumer is clear from the fact that, year after year, they have imposed increasingly high excise duties on steel which, today, at about Rs. 335 per tonne, represent, on the average, some 45% of the prices allowed to the producers and mulct Rs. 160 crores a year from the consumer.

RENEWED PLEA FOR REALISM ...

26. I realise that, with inflation stalking the land, with the bulk of our people harassed with shortages and spiralling prices and hard put to find the means to pay for the bare necessities of life, sacrifices must be made by all those who can afford them. I also realise the enormous pressures to which the Finance Minister is subjected in finding funds for meeting the country's essential needs. I have never pleaded, therefore, nor do I do so today, for additional profit to be allowed to industry to enable it to pay higher dividends to shareholders, however much, as your Chairman, I would like you to have them. I only ask that, at long last, our Government recognise the following realities of economic life:

  * That our current inflation does not flow from the prices of basic industrial products;

  * That the cure for inflation, therefore, does not lie in denying economic prices to core and priority industries;

  * That a fair return is as essential to promoting increased production and efficiency in basic industries as in any other industry;

  * That to deny such industries the wherewithal to maintain increased production can only result in more intensified inflation due to more intensified shortages;

  * That pricing policies which starve priority industries of their basic needs, while allowing high profitability and therefore easy access to unlimited finance to non-priority industries, make no economic sense;

  * That such policies can only intensify scarcities in essential materials which benefit neither the producer in terms of a fair return on capital, nor the consumer in terms of fair prices, nor Government in terms of growing tax revenues.

...AND A RATIONAL PRICING POLICY

27. It is axiomatic that the continuous expansion of the steel industry is essential to the growth of our economy, but its cost will be so great that finance from abroad in the form of deferred credits as well as Government-to-Government or World Bank loans must necessarily form essential elements of financing such expansion, whether in the private or the public sector. Pricing policies which ensure year after year that the steel industry cannot operate efficiently, and most of it operates at a loss, cannot but raise doubts in the minds of those whose help is sought. There is thus an unanswerable, and in fact imperative, case for fresh thinking on the part of Government leading to a revision of their pricing policies.

28. We are running out of time, for the damage already caused to the economy by the investment famine of the last eight years, due at least in part to pricing policies in controlled industries as well as to other deterrents imposed by Government, has reached the point where it will take years to repair.

29. The subject I have discussed at such length in previous paragraphs, because of its fundamental importance not only to the shareholders of Tata Steel but to industry as a whole, leads me to the project for the future expansion of capacity at Jamshedpur.

EXPANSION PROJECT

30. In the course of my statement last year I referred at some length to the possibility of a large-scale expansion of steelmaking capacity at Jamshedpur. Although this project is still only at an exploratory stage, a positive initial step has been taken in arranging, with the approval of Government, for a feasibility study to be undertaken by Nippon Steel, the leading manufacturers of steel in Japan and, today, the largest single steel producer in the world. Nippon Steel have undertaken to submit, after seven months, their report and recommendations on a possible expansion of about two million tonnes of flat-rolled products.

31. I am glad that the Government of India have agreed to this survey being undertaken by experts from Japan for, in the last decade, the growth of the Japanese steel industry has not only outstripped that of any other country in the world, but Japan is today a world leader in the design, construction and operation of iron and steel plants.

32. It is significant, and unfortunately not appreciated in our country, that the phenomenal growth and efficiency of the Japanese steel industry has been largely due to the fact that, although wholly in the private sector, it has received total support from the Japanese Government, as a result of which it has been able to invest astronomical sums, largely provided by the banking system, for new plants and the renovation of old ones. In this connection, shareholders may be interested to know that the oldest steelmaking facilities in current use in Japan are only as old as the youngest units at Jamshedpur

33. Whatever the recommendations of the Japanese consultants, the cost of a two million tonne expansion in flat-rolled products will, in any case, run into many hundreds of crores of rupees and the problem of how it can be financed, and its ultimate effect on our capital structure, will be a formidable one.

34. In view of the great national importance of the project, we have assured Government of our full cooperation in bringing it to fruition. At the same time, we have urged that the legitimate interests of the existing shareholders should be safeguarded and you may rest assured that we shall always do everything possible to ensure that this aspect of the matter is not overlooked.

CONDITIONS FOR SURVIVAL

35. I am convinced that the salvation and survival of our Company as a viable and prosperous unit of the Steel Industry will depend on three things, namely, on the Jamshedpur plant being expanded; on its continuing to be run efficiently and as near rated capacity as practicable; and, on steel prices being fixed at a level which will enable efficiently run plants to finance the continuous and essential process of renovation and modernisation in addition to providing their owners with a fair return.

DIRECTORS

36. Before closing, I wish to take this opportunity to express my personal appreciation of the decision taken by three of our senior-most Directors, Mr. Dharamsey Khatau, Mr. Neville Wadia + Jand Sir Fazal Ibrahim Rahimtoola to make room on the Board for three senior officers of the Company by not offering themselves for re-election this year or by resigning a year ahead of the due date. The Board have recorded their warm appreciation of this gesture and of the great services rendered by these Directors to the Company over three decades with which, I am sure, the shareholders will wish to associate themselves.

37. It is a sound and desirable principle, followed for many years in Tatas, and well established in other parts of the world, that top executives of proven ability and dedication should be associated as Board members in the policy-making process. I therefore warmly commend to the shareholders, the appointment at the Annual General Meeting, of Messrs. P. Anant, S.S. Vaze and H.P. Bodhanwalla.

38. In closing, may I once again, on your behalf, thank our management staff and workers for their continuing hard work, loyalty and support under the most trying conditions, imposed by the severe shortages and interruptions in the supply of power, coal and transport mentioned earlier which have so complicated and disrupted the Plant's operations. Our workers, whose earnings depend to a substantial extent on incentive schemes, are directly affected by loss of production. It is to their credit that they have appreciated that the cause of their loss of income was wholly beyond the control of management who have done, and will continue to do all within their power to afford them maximum relief, including supplies of foodstuffs and meals at subsidised prices. I sincerely hope for their sake as well as the Company's and the country's that the dreadful conditions that prevailed in May and June will not recur in the future and full production will soon be re-established and maintained thereafter.

Chairman's Statement for the year 1973-74

Bombay, 3rd July, 1974

A YEAR OF CRISIS

From the production point of view, the past year has been perhaps the most difficult year in the history of the Company, for never before have we had to close down parts of our plant or curtail output continuously because of lack of coal and shortages and interruptions in electric power. In fact, in February this year, we were more than once on the verge of total closure in order to protect our plant from damage.

2. These serious obstructions to sustained production have not been our lot alone. Practically all industries in the country have suffered from them at a heavy cost to our hard-pressed economy. Already burdened with a runaway inflation, massive shortages, the oil crisis, and other grievous problems, the country could well have done without this added man-made affliction which has aggravated the severity of all the other factors. Man-made it clearly was, for, although none of all the basic inputs of industry are more vital to production than the availability of raw materials, fuel, electric power and transport, these are the very items the supply of which Government failed to ensure after twenty years of all-embracing planning and economic controls.

3. These were not the only industrial inputs from the dearth of which industry and the whole economy have suffered in the past year. Steel, cement, soda ash, amongst others, were all in short supply, due largely to the primary shortages in coal, power and rail transport. As was to be expected, these multiple shortages added further fuel to the fires of inflation already more than sufficiently fed by massive deficit financing and country-wide shortages in consumer goods.

4. To err is certainly human and one would not feel so critical about these failures were it not that the advice, pleas and warnings, offered and submitted year after year by leaders of business and industry regarding the consequences of Government's economic policies, were consistently ignored or rejected.

5. In India, partly for ideological reasons, partly for a lack of trust in the private sector and, perhaps, partly also for reasons of misplaced prestige, the views of industry have been, and are, consistently ignored or rejected whenever they differ from the official view, which means most of the time. The few formalised consultative forums like the Central Advisory Council of Industries and annual meetings of Chambers of Commerce are generally treated as futile occasions for making, or listening to, set speeches, while Chairmen's annual statements, although usually well reasoned and documented, are wholly ignored.

THE HIGH PRICE OF UNREALISM

6. We all realise that the task of promoting a rapid rate of economic growth, with social justice, is an immensely complex one with controversial overtones in which there is, therefore, much room for divergent views, particularly where ideological considerations are allowed to impinge unduly upon the subject as they do in India. We also know that there can be no simple solutions to difficult human problems. But, in their urge to nationalise or control all economic activity, Government and Parliament still fail to face certain obvious realities, including such simple ones as that there can be no real social justice in a country like ours without economic growth for, today there is only poverty to distribute; that industrial production cannot rise without an increased supply of raw materials, electric power

and transport; that these cannot be ensured without adequate investment years in advance of needs; that a high level of production cannot be obtained solely by expending large sums of money on physical assets which, as so often happens in India, break down or operate at a fraction of their capacity unless backed by high standards of maintenance, managerial skills, training and experience and by a reasonable degree of discipline in industry. Most of these simple and obvious facts have been widely neglected in the past the consequences of which are at the very root of the present crisis.

7. Is there any doubt, for instance, that most of the infrastructural shortages which are crippling industrial production today are largely due to a dearth of investment in recent years on railway wagons and other essential needs, to poor maintenance and management, to labour disputes? Is it not true that, if instead of the 50% average utilisation of thermal generating units achieved in India today they were operated at the level of 80% to 85% achieved throughout the world, including, I am glad to say, by the Tata Thermal Plant at Trombay, much of the overall power shortage from which the country suffers today would disappear overnight?

A NEW DAWN?

8. Paraphrasing the well known adage, Night is supposed to be darkest before the Dawn. Two recent developments arouse hope that a new economic dawn may be breaking. The first one is Government's newly evinced determination that a minimum degree of peace and discipline be maintained in industry. While the workers' right to a fair deal, whether employed by Government or by the public or private sectors of industry, is undoubted and must be respected, their claims can no longer be judged in isolation from the claims of the far greater number of the country's under-privileged citizens, whose needs are even greater than theirs, nor in total disregard of available resources. In the dire straits in which our economy finds itself today, an irresponsible exercise of the immense economic powers trade unions have acquired since Independence, largely used for political ends, can no longer be allowed repeatedly to disrupt production and transport and hold the country to ransom. It may now be hoped that, following such determination to keep production going, the country has entered upon a new era of increased production and productivity.

9. The business and industrial community should, however, realise that any restraint imposed on or voluntarily accepted by labour in regard to wage demands and work interruptions places an even greater obligation on them to exercise similar restraint and discipline in regard to the pricing and distribution of their products, a restraint which today is too often conspicuous by its absence.

A WELCOME BREAK FROM THE PAST

10. The other development, which directly concerns the steel industry, is Government's new approach to the pricing of steel. Every year, for the last 25 years or more, I have argued and pleaded that Government's price fixing policies should be such as to ensure, in the country's own interests, the continued health of this most basic of all manufacturing industries. Yet, year after year, Government have continued to fix steel prices at levels much below those earned by steel producers elsewhere in the world, thereby denying to the Indian industry the minimum financial means required to keep its plants in good condition, let alone to expand their capacity. Upto October 1973, Government allowed the industry, usually with a costly time lag, only increases in prices sufficient to compensate it, not always in full, for increases in costs beyond its control. The basic price structure, however, which compelled the main producers to sell their steels at prices far below those at which they could be imported, remained largely unchanged.

11. The argument sometimes advanced in the past that the Indian consumer was entitled to some return for the sacrifices he had made in paying higher prices during the period of protection from 1923 to 1939, was wholly specious, for it conveniently ignored the fact that the sum total of these sacrifices was less than Rs. 11 crores spread over sixteen years, whereas the amount by which the industry in both sectors was made to subsidise the consumer in subsequent years, has come to the formidable total of over Rs. 4,400 crores, of which no less than Rs. 1,565 crores were contributed by our Company alone!

12. Apart from being grossly unfair to the industry, this policy was thoroughly unsound because, in the resulting scarcity of steel which prevailed most of the time in the country, the main beneficiaries of the low prices allowed to the producers were the black-marketeers, while the industry, deprived of adequate resources, stagnated to the country's detriment.

13. With effect from 15th October 1973, Government have taken an important step towards a more rational and fair steel pricing policy. While retaining the old formula in respect of plates, structurals and Railway materials, they have increased the prices of certain categories of steel to

levels which, while still substantially below foreign prices, allow the industry a badly needed accretion to the resources it can devote to replacement and modernisation. The results of this change in Government's policy are reflected in the accounts for the year.

14. Unfortunately the unchecked inflation which continued to stalk our economy has already eroded much of the increase granted in October; still, the new policy provides at long last a welcome indication of a more realistic approach, at least in regard to steel, to the question of price controls, and I would like to take this opportunity to express to Government our gratitude for their courageous decision. I can only hope that this new approach represents a permanent change in Government's thinking and that it will be extended, in due course, to other industries, such as cement, which have suffered for years in the same way as we have from the unrealistic policies of the past.

15. One feature of the new price policy, which shareholders will perhaps have noted with concern, is the condition imposed by Government that the excess of the new prices over the retention prices is to be used exclusively towards financing schemes of modernisation and development, none of it, therefore, being available for any increase in dividends. I am sure, however, that they will appreciate that, by enabling the plant to be modernised and made more efficient, the new policy is in their own long-term interests as well as those of the country as a whole.

EXPANSION PROJECT

16. As indicated in the Directors' Report, the Nippon Steel Company's Report for a large-scale expansion of steel capacity at Jamshedpur has been received. Their proposal, based on the technical aspects of the project, is for the construction of new capacity for producing three million tonnes of raw steel to be rolled into about 2½ million tonnes of flat products. Such an expansion would be 50% larger than that originally contemplated, and would bring the total capacity at Jamshedpur to about 5 million tonnes of raw steel or 2½ times the present capacity.

17. Unfortunately, the cost of the project is a correspondingly formidable one, estimated at about Rs. 1,800 crores, including the cost of development of our ore mines and collieries, power generating capacity, and a large raw material bedding and blending yard at Jamshedpur.

18. The estimate, so far as the plant itself is concerned, is based on Japanese costs which, oddly enough, are today higher than in the U.S.A. or Europe. In view, however, of the continuing world inflation, combined with the fact that such a large project would take some four years to complete, the cost is not likely to be substantially lower than the figure mentioned unless the scope of the scheme itself is curtailed.

19. In the face of such an astronomical financial requirement, shareholders may wonder what role their Company can play in the project. There is no answer to such a question at this stage. It is obvious, however, that the project is far too big for the Company to tackle alone and that Government and/or other institutional finance would have to bear the major part, if not the whole, of the burden.

20. Such a project cannot be considered in isolation, but must be viewed as part of the expansion of the Indian steel industry as a whole. That the industry must be expanded to meet growing demands is, of course, clear, but where, how and at what rate are complex problems which, ultimately, can only be resolved by Government in the context of the total economic development of the country and the constraints of available resources. An admittedly difficult problem of priorities arises here, for steel is only one of the many infrastructural needs in short supply today.

INFRASTRUCTURAL NEEDS

21. The fact must also be borne in mind that steel capacity cannot be expanded by itself. Along with it, must also be expanded sources of raw materials, electric power, rail transport, engineering products of all kinds, and, equally important, the human inputs required to engineer, build, manage, and efficiently operate them. As ·things are today most of these are in such short supply, that even the relatively low existing steel making capacity of the country cannot be fully utilised.

22. An indication of the magnitude of some of these requirements, especially significant in the light of the present situation, is that at least six tonnes of materials, including the finished steel itself, have to be moved in and out of a steel plant for every tonne of finished steel produced.

23. I sincerely hope, therefore, and would earnestly urge that, in considering the overall problem of expanding the country's steel capacity, Government will attach the full importance it deserves to the need for ensuring that the growth of all the required physical and human inputs of steel making keeps pace with the expansion of the steel making capacity itself. Few industries, if any, are more capital intensive than steel making, and India just cannot afford to spend vast sums on projects and then find that they can only be operated at a fraction of capacity because of inadequate raw materials, power or rail transport.

24. To revert to the Jamshedpur project and to the Steel Company's possible role in it, all I can say at this stage is that we have offered to Government our full co-operation in the national interest, with due regard to the legitimate interests of the shareholders. It may be of some reassurance to them to know that by far the largest amongst our shareholders are the Government financial institutions, which have made large investments in the Company out of funds belonging to millions of small policy holders and investors whose interests, which coincide with those of the thousands of our own shareholders, they will presumably do their best to protect.

OUR MODERNISATION PROGRAMME

25. The exciting prospect of participating in the engineering, construction and operation of a new and large steel plant at Jamshedpur is not being allowed to divert our and our Engineers' attention from the need to bring and maintain the present Works to the highest possible level of efficiency. We are therefore taking further steps to strengthen our engineering organisation, including its design capabilities, and to add to our ability to manufacture and fabricate scarce replacement items of plant and equipment, some of them of a sophisticated nature. It is not sufficiently realised in India how essential such activities are to the maintenance and development of any large factory or plant in a developing country lacking a strong design-cum-manufacturing infrastructure. The fact that it is sadly neglected in India explains much of the low plant utilisation and general stagnation prevailing in so many of our industries.

26. Because of the inadequacy in the past of internally generated funds to plough back into the rehabilitation and modernisation of our plant, some units of which are over fifty years old, there is now a vital need for us to undertake a large programme of renovation and improvement if the plant is to be able to operate at full capacity, when coal, power and rail transport become fully available again.

27. The new pricing policy of Government, to which I have referred earlier, and the resulting accretions to the modernisation and development fund make possible at long last a higher tempo of expenditure on renovation. Had we not been starved of funds all these years, the plant would be a more modern and efficient one today, and probably a larger one too, to the great benefit of the country.

28. We have, therefore, embarked upon a five year capital expenditure programme at an estimated cost of about Rs. 180 crores, of which a substantial part will be spent on our coal mines in order to make ourselves self-sufficient in our requirements of high grade coking coal.

SELF-SUFFICIENCY IN COAL

29. In view of the serious coal shortage which has recently developed and because of the much larger future requirements of the growing steel industry, it is now imperative that we should as soon as possible draw all our requirements from our own coal mines, the large scale development of which will be all the more necessary if and when the three million tonne expansion project materialises.

30. Such a mine development programme was not undertaken earlier, partly because of a lack of funds, but also largely, as stated in last year's Directors' Report, because of the inordinate delay, first, in getting Government's approval to our obtaining technical advice from France where coal seams and, therefore, mining conditions are similar to India's, and later in obtaining an industrial licence and the necessary import licences. This, incidentally, is another case of the industrial licensing system being, in my view, wrongly applied. I would urge Government to exempt from the obligation to secure industrial licences, projects for mining raw materials or manufacturing products required only for captive use and not for sale. It is a strange fact that in our country, in which there is such an obvious need for maximum production and rapid industrial growth, the licensing system is so often applied in a way which not only delays and slows down growth, but also seeks to punish those who produce too much rather than those who produce too little.

31. The years ahead will continue to be difficult ones for us, as I fear they will for the country as a whole, but the deep economic crisis in which we have been floundering, climaxed by a terrifying rate of inflation, seems to have aroused a new and refreshing sense of realism in Government quarters. Although still only a gentle breeze, the beginnings of the winds of change can be felt in the air and because of it I, for one, feel greater confidence in the future than before. One thing at least of which I am sure is that our Company will rise to any challenge and will, with efficiency and dedication, continue to play its role in the economic recovery and future progress of the country.

32. On the retirement of Mr. R.S. Pande, appreciation of whose services has been recorded in the Directors' Report, the burden of top management responsibility has fallen from the 9th April 1974 on the broad shoulders of Mr. Russi Mody after 34 years of distinguished service with the Company. Able and energetic, Mr. Mody has shown qualities of leadership, a consciousness of the importance of high morale at all levels and the need to pass on responsibility and initiative down the line, all of which, will I am sure, stand him in good stead in leading the organisation.

33. Since the last Annual General Meeting, the Board of Directors has taken on a new look with the appointment of three Institutional and three Executive Members. I am sure the shareholders will welcome this change which is in keeping with evolving circumstances and modern managerial trends.

34. As usual, I am happy to close my remarks with an appreciative reference to our management, staff and workers at Jamshedpur and elsewhere. Rarely in the whole of our long history have they had to function under such grievous handicaps and with so many obstacles to surmount as in the past year. They rose to the occasion magnificently and our unstinted thanks are due to them. The sense of pride in Tata Steel, the independence of spirit and judgment and the hard realism displayed year after year by our workers and staff have made Jamshedpur an oasis of industrial peace and discipline unique in our country torn by recurrent industrial strife. This, perhaps, is our greatest asset for which we and the whole country may indeed be thankful.

Chairman's Statement for the year 1974-75

Bombay, 7th July, 1975

A YEAR OF RECOVERY

If 1973-74 was for us a year of crisis, 1974-75 will go down in our history as a year of recovery. With the acute shortages and irregularities in the supply of such essential inputs as coal, power and transport which plagued our operations in the previous year largely overcome, our plant was able, once again, to operate at over 90% of finished steel capacity. The improvement was even more marked in regard to our profits before taxes which were nearly doubled, thanks both to the substantial improvement in production and to the fact that the increases in retention prices allowed by Government to steel producers in September and October 1973 had applied to the whole year, as against a little over five months in the previous year.

2. There is every reason to hope that in the current year the plant's operation will be maintained at near a hundred per cent of rated capacity, but in regard to profit, it is necessary to note that the increases in retention prices granted in 1973 have by now been fully absorbed by cost escalations beyond management's control, mainly in the cost of coal, power, fuel and wages. There is thus a case for a further increase in steel prices, particularly in respect of those categories which were left out of the increases sanctioned in October 1973, for, despite a sharp fall in steel prices in the world markets, the prices allowed to the Indian producers are still in most categories substantially below the prices earned by producers in other countries.

PRICE POLICY

3. As I mentioned last year, Government's price policies over the last 30 years or so had resulted in the steel industry subsidising steel users to the extent of some Rs. 4500 crores, of which nearly Rs. 1600 crores were contributed by our Company alone. While the gap between foreign and Indian ex-Works prices has substantially narrowed recently as a result both of the price increases sanctioned in 1973 and the current and presumably temporary collapse of world prices, it is still considerable and would fully justify a further increase in prices and the resulting accretion after tax to the industry's funds which it badly needs. The necessary representation has been made to Government but it may well be viewed in the context of Government's declared intention to continue, and even strengthen, the programme of stringent measures adopted by them to curb the rampaging inflation which was threatening the economic stability of the country. It must be recognised that this programme has played a powerful role in bringing down the rate of inflation from 30% in 1973-74 to around 8% in 1974-75, an achievement on which Government deserve to be congratulated.

4. Thus, for the present at least, the only certain means available to the Indian steel industry to maintain, let alone increase its profitability, in the face of mounting costs, lies in an increase in production and strict control over costs. As we hope to achieve full production this year, or as close to it as practicable, our own efforts must necessarily be concentrated on increasing efficiency and lowering costs, or at least absorbing further increases beyond our control, and on improving our product-mix and therefore its yield.

5. While we may feel satisfied that at the present time our rate of production and our costs compare favourably with those of the other steel plants in the country, any long term view must take account of certain factors which, while to our advantage today, will gradually turn to our disadvantage in the long run unless they are replaced by gains in other directions.

AGE — ITS COST AND BENEFITS

6. For instance, the age of our plant is to our advantage today in that it keeps our current burden of depreciation at the relatively low figure of about Rs. 100 per tonne of finished steel. With the present capital cost of new capacity in excess of Rs. 5,000 per tonne of finished steel, the incidence of depreciation on a modern plant at a modest average rate of 5% on gross block would be at least twice as high as ours is today. This, however, can only be a temporary advantage, for, as we gradually replace our old plant and equipment with new, our capital cost per tonne of capacity will keep on rising and the time will ultimately come when our burden of depreciation will not be much lower than that of the other steel plants in the country.

7. Again, the advantage we have today of fuller production, and therefore lower costs, will disappear as the other plants continue to improve the utilisation of their capacity as they have creditably done this year. Thereafter, they will enjoy additional benefits of scale, of lower labour costs and of more modern equipment and processes, as their current and future expansion programmes fructify, benefits which will be available to us only if and when the capacity of our own plant is materially expanded.

THE MARCH OF TECHNOLOGY

8. It must be remembered also that the most recent parts of the Jamshedpur plant date back to the fifties, since when significant technological advances have been achieved in the world in the making and processing of steel, many of which have been adopted by the new public sector plants. For instance, until about twenty years ago the whole of the world's steel was made in open hearth furnaces, except for some categories of special steels made in electric furnaces. Since then, the much quicker and cheaper L.D. process, or variations of it, using basic oxygen vessels, has increasingly replaced the open hearth process to the extent that not a single open hearth steel melting shop has, to my knowledge, been built anywhere in the world in recent years. Unfortunately, we cannot afford at present to convert our steel melting shops to any of these modern oxygen processes.

9. On the iron making side, although blast furnaces continue throughout the world to provide the predominant if not the sole means of producing iron, and their basic design has remained largely unchanged, they have grown to an incredible extent in size and efficiency as may be seen from the fact that whereas our latest furnace, which, built in the fifties, was a fairly large one by world standards of those days, has a capacity of about 1,500 tonnes a day, furnaces have been and are now being built in various countries capable of producing more than 10,000 tonnes of iron per day. The latest blast furnaces in Japan have in fact a capacity of 13,000 tonnes a day. The benefits of scale are obviously enormous in such cases.

THE ROAD AHEAD

10. We should not be unduly discouraged by these facts, for they need not at all point to an inevitably bleak future for us. While the scale of our operations may be relatively small by modern world standards and we may not be able for many years to undertake the type of replacement-cum-expansion programme we carried out in the nineteen-fifties, when we doubled our capacity at one go, it will be possible for us, subject only to financial constraints, to maintain and even improve the financial viability of our operations by an accelerated and expanded programme of modernisation and replacement of ageing equipment, combined with a gradual shift to quality steels and special products.

11. Of these two objectives, we have naturally given first priority to making our plant grow younger through replacements and repairs so as to maintain its efficiency and productivity at the highest possible level, and most of the programme of capital expenditure of over Rs. 150 crores which we have planned for the next five years is primarily aimed at this objective. Fortunately, the steps we have taken in recent years to expand our own facilities for manufacturing equipment and components needed for modernisation and replacement, will enable us to carry out this process faster and at a lower cost, largely free from foreign exchange expenditure, than if we had to import these items or have them made by others in the country.

12. On the other hand, it is necessary for us to allocate out of this five-year programme about Rs. 40 crores to expanding the coal raising and washing capacity of our collieries so as to make us totally self-sufficient in coking coal, as we have throughout been in iron ore. As the public sector of the industry grows, its requirements of coal will correspondingly rise, and it is only right, as well as in our own interests, that we should obtain all our requirements of coking coal from our own captive mines, quite apart from the fact that we shall thereby benefit from lower coal costs.

13. Apart from such continuous programmes of renovation and modernisation, there will be other avenues open to us for gradually improving the financial yield of our operations through technological improvements which can be achieved over a period of years at a capital cost within our resources. A number of such possibilities are being actively considered as a second line of attack on the problem of improving our long-term prospects.

PROMISE AND PERFORMANCE

14. While the recession in the demand for steel in India has brought to an end, at least for the time being, the longstanding shortages in steel supplies which have enabled the black market ruthlessly to exploit the consumer, it is depressing to note that India's total production of finished steel in 1974-75 was less than 5.5 million tonnes, whereas the Third Five Year Plan, announced in 1959, had set a production target of 7.5 million tonnes of finished steel by 1965-66, and the long-term perspective plans prepared by Government in 1964 visualised a production of 13.5 million tonnes by 1970-71 and 21.5 million tonnes by 1975 -76, that is today! This dramatically illustrates the mixture of undue optimism and poor performance from which our country has suffered in the past two decades. Nonetheless, I for one have no doubt that, building on the considerable infrastructure established in the country during this period, we can and will achieve much faster progress in the future, provided of course that the lessons of the past have been learnt and that the mixture will now be one of realistic plans and policies and vigorous implementation. In the meantime, we may at least be thankful that the steel capacity originally contemplated has not, in fact, materialised, for the country would otherwise have been saddled today with the staggering task and cost of keeping over nearly two-thirds of the capacity idle!

THE ROLE OF MINI STEEL PLANTS

15. One important aspect of the future growth of the Indian steel industry to which I feel inadequate consideration, or the wrong kind of consideration, has been given, is the role of small-scale steel manufacture in the electric arc furnaces of what have become popularly known as 'mini' steel plants. Extraordinary projections have been voiced in some quarters, where the view seems to be held that the future lies in the establishment all over the country of a host of such small plants, rather than in the expansion of integrated steel plants or the creation of new ones. As a result, licences have already been issued for as much as 4 million tonnes of annual capacity, without ensuring that power and raw materials would be available to the new plants.

16. As often happens with simplistic solutions to complex problems, this one has already got into serious trouble, most unfairly for the new entrepreneurs who ventured into this field, as may be judged from the fact that anything between half and two-thirds of the 2 million tonne mini steel capacity already installed is idle today. Reliance on mini steel plants as a major instrument for the production of tonnage steel is, in my view, unsound for a number of reasons:

(i) Electric furnaces are voracious consumers of electric power, shortages of which are already near-catastrophic in India, as evidenced by the drastic power cuts imposed on industry from time to time, extending in one case to 100% during the past year. All indications point to continued power shortages, though hopefully less severe, for many years to come, as demand continues to grow faster than supply as it has done in the past four years.

(ii) Steel produced in electric furnaces is, and will always be, much more costly than tonnage steel produced in large integrated steel works mainly because of the high cost of power consumed by the former. Our own cost of production of electric steel at Jamshedpur, charging scrap at a lower cost than its market price, is about 40% higher than that of steel produced in our steel melting shops, itself higher than it would be if it was made in modern basic oxygen vessels, instead of open hearth furnaces.

(iii) The assumption of adequate availability of the raw materials for the mini steel plants is highly questionable. for, while India is not short of melting scrap today, it certainly has nothing like the 4 to 5 million tonnes which would be required by all the mini steel plants, built or licensed upto now, operating at a reasonable percentage of capacity. In fact, the Ministry of Steel, which, today, fortunately takes a wholly realistic view of the role of mini steel plants, estimates the maximum current availability of ferrous scrap in the country at only about 2 million tonnes.

(iv) Finally, the easy assumption that sponge iron can be used as raw material when scrap is not available grossly anticipated what may one day be an effective substitute for steel scrap, but is not so yet or likely to be for some years, particularly in India where gas is not available and the use of coal as the reducing agent for this purpose is still being developed.

Thus mini steel plants would be hit by a severe shortage of raw material even if power were freely available to them.

17. That such plants do offer well defined advantages, such as short construction and gestation periods, flexibility in operation and in spreading developmental expenditure and employment over the whole country, is not disputed, nor is the fact that the manufacture of steel in electric furnaces, whether in mini steel plants or as part of integrated steel works, special steel plants and the like, undoubtedly forms a vital part of the total steel industry of any country for the manufacture of special steels. In their own interests, as well as those of the country, therefore, mini steel plants should be given every encouragement to organise and equip themselves for the manufacture, heat treatment and finishing of high alloy and other special steels, rather than confine themselves to ordinary steels for the economic and large scale production of which India, like all other countries, must continue to depend on integrated steel plants.

DIVIDENDS

18. I hope shareholders will wholly approve of the Directors' recommendations in regard to dividends. I feel, however, that I should explain, for the benefit of those shareholders who are not fully familiar with the various constraints and conditions imposed today on the payment of dividends by joint stock companies, that your Company's discretion in the matter is subject to the following three separate restrictions:

(i) An ad hoc ceiling of Rs. 8.60 per ordinary share for a period of three years, as part of an agreement with Government when prices were increased in October 1973 and a similar limitation imposed by Government financial institutions under the loan agreements between them and the Company entered into in 1973 and 1974.

(ii) The Act restricting dividends which, until February this year, limited dividends to a third of the distributable profits or 12% on ordinary shares, whichever was lower, under the terms of which the Board was compelled last year to reduce drastically the dividend of Rs. 8.60 per ordinary share they had recommended to Rs. 4.75 per share. Under an amendment to the Act, passed in May this year, the ceiling on the amount of dividend declared has been removed, but such of it as exceeds the earlier ceiling can be paid with interest at 8% only in two equal instalments spread over the following two years.

(iii) Another provision of the law, permits dividends to be declared only out of profits made in the year in respect of which the dividends are declared.

19. The net result of this multiple set of regulations and conditions, so far as we are concerned, is that the maximum dividend that we can actually pay this year is Rs. 8.31 per ordinary share (which the Directors have rounded off to Rs. 8.30) while the maximum we can declare is Rs. 8.60, of which 30P per share would have to be paid in two instalments of 15P each, in 1976 and 1977.

20. The payment of 15P per share on two occasions to some 80,000 shareholders would involve an expenditure of money, trouble, time and effort wholly disproportionate to the benefit the shareholders would derive from it, and I am sure you will approve of the decision taken by the Directors in limiting the declaration of the dividend to Rs. 8.30 per share, all of which can be paid at once.

A SAGA OF CO-OPERATION

21. In conclusion, I must refer once again to the excellent performance of our Company's organisation and staff at Jamshedpur. The fact that they are able, year after year, to maintain operations at a high percentage of rated capacity tends to conceal the fact that continuous high level production in an integrated steel complex like ours, under the conditions prevailing in our country, is a grim and continuous struggle against obstacles, delays and difficulties, which can only be overcome by hard, unstinting efforts and co-operation on the part of thousands of dedicated managers, engineers and workmen. Our thanks and gratitude go to them all as well as to all our staff and employees at the collieries, mines, quarries and elsewhere, for the excellent results achieved during the past year. Although they were spared some of the critical difficulties under which they had to operate the plant the year before when shortages of power, coal and other inputs were so severe as at times to threaten the closure of the plant, conditions were far from what would be considered normal in other countries.

22. Perhaps the most remarkable and gratifying feature of the Steel Company's record is the uninterrupted freedom it has enjoyed for 17 consecutive years from any loss of production due to labour unrest. There is no large centre in India today where such outstanding industrial relations, co-operation and freedom from strife have prevailed as they have done all these years at Jamshedpur. Such situations do not occur by accident, but are the outcome of good sense and sustained effort on the part of both Union and Management and, of course, of the men themselves. It is these qualities, conspicuously present at Jamshedpur, which have made it a unique haven of industrial peace and co-operation and a model for the whole country to follow. It is only right, therefore, that we should also congratulate and thank the Tata Workers' Union at Jamshedpur as well as the unions representing our employees at the Mines and Collieries, for their statesmanship and exemplary trade union practices, without which it would be impossible to maintain, year after year, the uninterrupted operation of a large industrial complex involving the production effort of over 50,000 employees.

Chairman's Statement for the year 1975-76

Bombay, 25th June, 1976

A SET-BACK

The sharp set-back in profits suffered by your Company during the past year will no doubt have caused deep disappointment to the shareholders, particularly as they knew only of the high rate of production reported to them through the newspapers every quarter and were unaware of the steep continuing escalation in costs. They may therefore have expected that the results would not be very different from those of the previous year which recorded the highest profit, before and after tax, ever made by the Company.

2. Your Directors realise that the periodical publication of only production and sales figures does not provide an adequate indication of the progress of the Company during the year. If, therefore, it meets with the shareholders' approval, we shall henceforth issue a mid-year report on the performance of the Company and the conditions prevailing in the industry.

ITS CAUSES

3. Although the Directors' Report has briefly indicated that the substantial decline in profit during the year was due to cost escalations beyond the control of the Company, compounded by a recession in demand, shareholders will, no doubt, expect from me a fuller understanding of the causes of this set-back.

4. In comparing the results of the two years, note should first be taken of the fact that, in the year 1974-75, the Company enjoyed for the full year the benefit of the substantial increase in prices sanctioned by Government in October 1973. That increase, which averaged Rs. 245 per tonne in our case, resulted in a net accretion to the revenues of that year of about Rs. 18 crores before tax and Rs. 8 crores after tax.

HIGH COSTS

5. In both the Directors' Report and my Statement to the shareholders in July last year, it was pointed out that by 31st March 1975, the above increase in prices had already been almost fully absorbed by cost escalations beyond management's control, mainly in respect of coal, power, fuel and wages. Since then and upto March 1976 works costs escalated further by about Rs. 110 per tonne.

LARGE INVENTORIES

6. To add to our difficulties, the recession in demand during the year resulted in a large increase in our steel inventories, the financing of which alone added more than Rs. 3 crores to our interest burden, and for the first time since Independence necessitated the grant of rebates on certain slow-moving categories of steel compensated only partly by the larger tonnages sold through stock-yards at a higher price.

LOW PRICES IN INDIA ...

7. I am sure shareholders need no reminder of the fact that year in and year out we have, both in my Chairman's Statements and in correspondence and discussions with Government, pointed out the gross inadequacy of the ex-works prices fixed by Government, and argued and pleaded for a realistic pricing policy which would enable this basic and vital industry, not only to maintain the efficiency of its plants but also to modernise them as they aged and became obsolete.

8. Mine have been cries in the wilderness except in 1973 when Government did grant temporary relief through a substantial price increase. Over the last thirty years or so, however, the steel industry has consistently been made to charge uneconomically low prices to steel users.

...COMPARED TO THOSE ABROAD

9. Let me illustrate the point by some simple examples of the comparative situation in India and elsewhere. The current price of structural sections allowed to Indian producers in both public and private sectors is today lower by about 65% than in the UK, 64% than in the USA 51% than in Japan, and 57% than in Australia. In the case of bars and rods the gap is 40% in comparison with the UK, 43% with the USA, 29% with Japan and 38% with Australia, while the ex-works price of plates in India is 56% less than in the UK, 60% less than in the USA, 50% less than in Japan, and 54% less than in Australia.

10. It will thus be seen that the Indian steel industry is compelled to sell its steel on the average at something like half the price earned by the steel industry in other countries, although the capital cost of putting up steel capacity in India is no lower than in those countries, and where higher wages are largely compensated by higher productivity.

11. By permanently denying to the Indian producers, through unrealistically low prices, the means to ensure the efficiency and continuous modernisation of their plants, Government make sure that, over the years, their costs of production will relentlessly rise as a result of the growing cost of maintaining old plants and of their inability to replace obsolete equipment and processes by modern and more efficient ones.

12. If, notwithstanding its age and lack of modern equipment, our plant continues to produce good steel at near full capacity, it is mainly because of the heavy capital expenditure we have incurred year after year, totalling nearly Rs. 200 crores in the last ten years. The fact that a number of units of the plant broke all-time records during the past year shows that it is kept in first class operating condition, and is also a tribute to the skills, experience and hard work of our workers, technical staff and management.

UNFAIR BURDEN

13. In the special economic circumstances of India, one could understand that Government, as part of their overall campaign to control inflation, want to keep as low as possible the prices of basic materials or services, such as steel, cement and power, which strongly affect the cost of a host of other products. One can also appreciate Government's need for tax revenues and there could be no objection if the burden placed on the producer on both these counts were a fair and reasonable one. It has however been far from being so in the case of the steel industry, and I submit that the lengths to which our Government have gone in this direction are self-defeating in the long run.

PRICES BELOW COST

14. Not only is the price at which we are compelled to sell our steel in India about half that of domestic prices abroad as pointed out earlier, but in a substantial number of our products, we are not allowed even to recover our works costs, leave alone their due proportion of overhead costs. It may come as a shock to shareholders to know that in the past year, 450,000 tonnes, or 36% of our total domestic sales, were sold at a loss of Rs. 8 crores, excluding depreciation and interest. With these added, the loss was approximately Rs. 15 crores.

15. As if this were not enough, on top of the heavy sacrifices the industry is compelled to make by selling its products at uneconomically low prices, Government impose on it the additional burden of ever increasing and now disproportionately large excise duties, which on our own product-mix amount today to Rs. 381 per tonne. Can there be any economic justification for such self-defeating policy which cripples the most vital of all industries in the country?

16. When Government built their own public sector plants, which now represent about 70% of the total capacity of the major producers, I had hoped that as steelmakers themselves they would appreciate the imperative need of economic prices in order to ensure that their plants remain efficient and technologically modern over the years. This was a vain hope, for the public sector is also compelled today to sell some of its own products below cost.

17. What do we expect Government to do, faced as they are with economic problems of an admittedly formidable magnitude and multiplicity? We certainly do not ask that they should raise steel prices to the full level prevailing in other countries. We do expect them, however, to cease compelling the steel industry to act as a milch cow for the benefit of other industries and of Government's own steel-consuming departments, either by raising prices to a reasonable extent or reducing excise duties, or both. We do not ask more than that the steel industry be allowed to earn enough to meet its costs, pay moderate dividends, and put enough aside each year to plough back into plant improvements and modernisation.

18. We also expect, as was the case until 1963, that increases in costs beyond the industry's control, particularly those caused by Government's own actions, should be promptly met by an appropriate increase in ex-works prices.

19. I realise, of course, that selling prices to the consumer could not have been increased during the past year when a severe demand recession prevailed, but the object could have been achieved by a reduction of, or exemption from, part of the excessive excise duties charged on such basic products as iron and steel, which are the raw materials for many other industries.

DIVIDENDS

20. When an increase in steel prices was granted to the industry in October 1973, Government imposed on us the condition that the bulk of the increased revenues should be credited to a fund to be used only for capital expenditure on the plant. The amount so set aside was Rs. 6.40 crores in 1974-75, and Rs. 5.69 crores in 1975-76.

21. This condition, which lost its purpose from the time that cost increases exceeded the October 1973 price increase, has had the unfortunate and unintended consequence of compelling us to pay a part of the dividends out of reserves. This has this year brought us within the mischief of a new rule framed under the Companies Act, which limits dividends, any part of which is paid out of reserves, either to the average of the dividends of the previous five years or to 10% of the paid-up capital, whichever is lower. Your Directors were thus debarred from distributing in dividends, including dividends on Preference shares, a total amount of more than Rs. 4.83 crores. As a result, instead of the dividend of Rs. 8.60 per share they intended to declare on Ordinary shares, they have been compelled to restrict it to Rs. 7.75.

22. I deeply regret this further disappointment caused to the shareholders who had already suffered severe hardship from the dividend restriction of the past two years.

BONUS ISSUE

23. While the shareholders will, I am sure, approve of the proposal to capitalise Rs. 12.86 crores of our reserves and convert them into equity capital, they will no doubt wish to know why the Directors have preferred to give effect to it by raising the paid-up value of the existing Ordinary shares from Rs. 75 to Rs. 100 rather than adopting the more usual method of issuing one new share for every three held.

24. We have recommended the former method for a number of reasons:

(i) It will be much simpler in that it will only require the over-stamping of every existing scrip instead of issuing new certificates to every shareholder.

(ii) It will avoid the need to issue fractional coupons to owners of a single share which they would then have had either to sell, or to consolidate into one share by buying two more coupons. Instead, every holder of a single share will automatically receive an exactly proportionate bonus element of one-third of his shareholding without the trouble and expense of buying and consolidating coupons.

(iii) It will be much cheaper because of the saving in paper, printing and postage.

(iv) It will be quicker because arrangements can be made for the scrips to be over-stamped without delay on mere presentation.

(v) It will bring the Ordinary shares of this largest of all the companies in the private sector in line with one of the two common and convenient share denominations normally in vogue in the country.

(vi) Finally, it will avoid the need to issue a further 1.7 million shares which by adding to the outstanding floating stock could, in certain circumstances, act as a depressing factor on market values.

I trust, therefore, that shareholders will approve of the Directors' proposal.

PROSPECTS

25. Having read, I hope with patience and understanding, this long exposition of the past and present circumstances of the Company's set-back in the year under review, shareholders will no doubt want some reassurance as to our immediate prospects.

26. Considerable improvements in the supplies of coal, power, transport, and in industrial peace in the country, resulting from the various measures taken by Government since the declaration of the emergency, have undoubtedly helped to increase or maintain production in all industries. In our case, however, with full production already achieved, with costs under tight control and inflation checked, prospects of any substantial improvement in our fortunes in the current year will depend on a number of favourable factors materialising: first and foremost, the end of the recession, helped, hopefully, by the impact of another favourable monsoon and the injection of substantially larger plan outlays; second, the long overdue increase in steel prices which such improvement will make possible, particularly on those categories the prices of which today do not even meet cash costs; and third, a further increase in exports.

27. With the world's economy emerging from the recession which plagued it during the past two years, the international demand for steel is bound to increase and with it the opportunities for exports from India. Shareholders will have noted that even in the past recessionary year our Company booked substantial orders which unfortunately could not be fully met owing to shipping difficulties. So long as domestic prices in India are kept at uneconomically low levels, I hope that we will be enabled to make up the loss of revenues thereby suffered by us through larger exports. I can assure shareholders that every effort will continue to be made to raise our profit earning potential at both the cost and revenue ends of our operations.

WHITE PAPER ON STEEL

28. The White Paper on the steel industry recently presented to Parliament by the Ministry of Steel and Mines is an important contribution to long-range economic forecasting. Considerable, and perhaps undue, interest has been aroused by the tentative estimate that India by the year 2000 might need a total capacity of 75 million tonnes of ingot steel against the current capacity of 12 million tonnes and production of 8 million tonnes. Given India's then population of 1000 million, this may not be an over-ambitious target in the light of her technological, natural and human resources, however staggering the magnitude of the capital investment that would be required. Taking into account not only the cost of constructing new plants and expanding existing ones but also that of the considerable infrastructure that must simultaneously be built to supply them with raw materials, power, transport and the like, the total cost might be of the order of over 50,000 crores in terms of today's rupee, and, say, 85,000 crores at its average value over the next twenty-five years.

29. The key questions which would have to be answered would be: Could the steel industry be allowed to pre-empt such a large part of total investible resources over the competing claims of other pressing priorities? Would the steel-consuming sector of the economy be able to absorb such a flow of steel? Indeed, if so much capital is taken up by steel itself, will we have sufficient capital left for the growth of the steel-consuming industries themselves? Would it be wise to plan for substantial exports considering the low capital output ratio of steel when the export of products made of steel could earn so much more foreign exchange and steel-consuming industries generate so much more employment?

30. Doubtless, questions such as these will be examined in depth; for the time being, we may welcome this valuable exercise in long-term planning and the fact that it has drawn attention to the implications of large-scale and rapid expansion of steel capacity, and the need for increasing the internal cash flow of the industry, to which I have myself repeatedly referred in the past and again in this Statement.

CONCLUSION

31. I regret that I have, on this occasion, dwelt at such length on one subject, but I felt it my duty to provide shareholders with a full understanding of the operations of the past year, the reasons for the set-back suffered, the situation in the industry and the prospects for the immediate future. If my remarks sound pessimistic to some, that was certainly not my intention which was only to present a true and realistic picture.

32. I remain optimistic in regard to our Company's long-term future, subject only to Government policies, particularly in regard to steel prices. While I have regretted that the policies followed up to now have been self-defeating and have seriously impeded over the years the progress of our Company, I believe that the hard economic realities of this tremendous country of ours are better understood today than they have ever been before. Winds of change have been blowing around us, sweeping away some of the old ideas and rigid formulae which have held back progress in the past. There is a new urge to achieve results and to avoid delays and unnecessarily complicated procedures. We might, perhaps, wish the process to be an even more rapid and profound one, but at least it is in the right direction. There is, finally, a new insistence on hard work and discipline and a widespread response to it which has already made industrial life easier and more productive. The economy of the country cannot but benefit from the present trends.

33. So far as your Company is concerned, it is in many ways in better shape than it has been for a long time. As I have said earlier, our plant, though old and in parts obsolete, is in excellent condition and capable of sustained production. The morale of our organisation remains high and has, if anything, been strengthened by the difficulties of the past year. Our financial position remains strong with a satisfactory debt/equity ratio.

34. I cannot prophesy what action Government will take, nor when it will be, in regard to steel prices to which I have devoted so much of my Statement, but I do know them to be fully aware of the urgent needs of the Industry in both sectors, and I can only hope that the right action will be taken soon, as market conditions improve.

35. It remains for me to express the Board's and, I am sure, the shareholders' sincere appreciation of the excellent performance of our workers, technicians and staff at all levels, at Jamshedpur, at the collieries, at the mines and elsewhere. As I have often said before, they remain our greatest asset and our best hope for the future.

Chairman's Statement for the year 1976-77

Bombay, 6th July, 1977

A HISTORIC CHANGE

The dramatic and indeed, historic change in the political situation in our country which took place just before the close of the year under review brought to power at the Centre, for the first time since Independence, a party other than the Indian National Congress. It is fitting, therefore, that I should begin my statement with our congratulations and good wishes to the Janata Party and our assurance of full support to the new Government in any manner in which we can be helpful. The economic problems they face and the task they have undertaken of eradicating destitution in ten years are forbidding indeed, and one hopes that the whole country will unite behind them in this war against want.

A NEW PATH

2. It is a matter of gratification to know that in one important respect they will follow a significantly different path in the economic development of our country from that followed ever since the advent of central planning. With poverty known to be concentrated mainly in the rural areas of the country, it should have been clear, as it was to Mahatma Gandhi, that in order to eradicate poverty, planning and economic action should start with agriculture and rural development. Instead, our then planners and political leaders, following the pattern of economic development which Soviet Russia adopted to fulfil certain strategic aims which were not applicable to India, chose to place the main emphasis on industrial development, particularly in the heavy sector. This is strikingly shown by the fact that over twenty-six years of planned development only 22% of the total public sector outlay was spent on agriculture and irrigation while nearly 60% went to industry, mining, power, transport and communications. In fact, in each of the Five Year Plans following the First, the percentage of total planned expenditure allocated to agriculture and irrigation was lower than in the First Plan. Need one wonder at the fact that the number of our people living below the poverty line, as defined by Government itself, is greater today than at the beginning of planning and, in fact, greater than the whole of our population in 1947?

3. The announced policy of the new Government to give henceforth first priority to agriculture and rural development is therefore the best news the country could have had at this juncture. The Finance Minister's statement in his budget speech that this new orientation of policy will not mean that industrial development will be neglected, is also welcome. Indian industry, in both public and private sectors, is by now well established, widespread and ranges over almost every industrial field. It has developed a strong infrastructural base of technological and managerial skills and can, with reasonable support from Government and Government financial institutions, continue to grow on its own, generating or attracting a large part of its capital investment needs.

PRIORITY TO EMPLOYMENT

4. It is clear from various Ministerial pronouncements that our new Government intends to make the further development of the industrial sector of the economy employment-oriented, i.e. to give preference to labour-intensive techniques of production. A rapid increase in employment opportunities is indeed the most important step in any programme of eradicating poverty, for unemployment is itself the root cause of poverty in our country. At the same time, in our enthusiasm to promote village and small-scale industries, the pendulum should not be made to swing to the other extreme, for the increased purchasing power which progress towards the removal of destitution will place in the hands of the poor will, after meeting subsistence needs, undoubtedly seek products and services some of which can only be produced of the right quality and price by modern mechanised means. There is a practical limit to the ability of village or very small-scale industry to meet these requirements. Industry should therefore not be barred or unduly discouraged from meeting the demand for such goods.

INFLATION AMIDST ABUNDANCE

5. Of all the economic problems facing the new Government, that of inflation is perhaps the most pressing one. The inflation we have today in India is very different from that which prevailed in the early seventies the cause of which lay mainly in a scarcity of agricultural and other products as well as of the foreign exchange required to finance imports to supplement them. In contrast, we have today inflation amidst abundance. We have huge buffer stocks of over 21 million tonnes of foodgrains, but the poor remain hungry because they do not have the income with which to buy the extra food they need. Millions of metres of controlled cloth remain unsold because the poor cannot afford to buy it even at the low price imposed by Government, at crippling cost to the Industry. Even in the case of steel, domestic consumption is today no higher than it was five or six years ago and instead of the steel scarcity which fanned the black market fires of those days, we now have over1.4 million tonnes in unsold stocks.

LIMITED SCOPE FOR PRICE REDUCTION

6. Unfortunately, the scope for reducing prices of mass consumption goods it limited. In fact, in the case of foodgrains, which alone account for more than 60% of the consumption basket of the poor, high prices are actually protected and supported by Government as an incentive to producers, and the price at which wheat is sold in ration shops is already subsidised to the extent of about 37%.

7. Industrial goods, on the other hand, enter that basket only to a small extent and the scope for materially reducing their prices is virtually non-existent, burdened as they are with high and ever rising cost of inputs such as raw materials, wages and power and with heavy cumulative imposts of excise duties all beyond the producer's control.

8. One thing that seems clear from all this, apart from the fact that there is no simple or easy solution to the inter-dependent problems of poverty, growth and inflation, is that it is mass unemployment and low purchasing power, perpetuated by inadequate economic growth, and not scarcity, which are at the root of our economic predicament.

9. In these circumstances, attempts to reduce prices through such measures as zero deficit financing, cut-backs in Plan investment, credit curbs on productive industrial sectors, and contraction of money supply, while they may yield results for a short while, will inevitably impede growth and spread unemployment and poverty if maintained in force too long.

10. It seems evident therefore that the real solution to the problem lies instead in accelerating the process of growth by increasing investment and production, particularly in consumption goods, and by creating maximum opportunities for productive employment. Only thus can be made bearable the high prices and such degree of inflation as seem unavoidable concomitants of rapid economic growth in the present era.

THE YEAR'S RESULTS

11. Coming to our own affairs, as shareholders will have noted from the mid-year report we issued on 16th November 1976, the Company's performance showed a marked improvement during the half-year ended 30th September 1976 over that of the corres ponding period of the previous year, both in production and profit, auguring well for a comparable improvement in the whole year's results. Such expectation has been fully borne out by the results now placed before the shareholders who will see from the annexed accounts that the Company fully recovered from the setback of the previous year, thanks on the one hand, to a further increase in our output and sales and on the other, to a hard driving programme of cost reduction begun in the previous year for which the Management and staff at Jamshedpur deserve great credit.

12. The increase in profit before tax of Rs. 5.4 crores or 42%, is all the more gratifying for having been achieved after bearing an increased burden of Rs. 2.4 crores in depreciation and interest, and about Rs. 1.2 crores in respect of Performance Reward pertaining to the previous year but accounted for during 1976-77.

13. Shareholders may feel disappointed that the increase in the Company's profit has been fully absorbed by appropriations ranking ahead of dividends, but, as stated in the Directors' Report, they were helpless in view of the mandatory constraints imposed on the Company and the dividend they recommended was the maximum permitted.

14. In view of the steep rise in costs since steel prices were last raised by Government, and the fact that the Company spends year after year on the plant far larger amounts than Government requires us to set aside to the Plant Modernisation and Development Fund, we have represented to Government that this requirement should be lifted. I have every hope that this will shortly be done, enabling us from next year to pay dividends from current profits instead of from reserves.

15. In the meantime, I hope shareholders will derive satisfaction from the fact that the amount of dividend to be paid per share is 29% higher than in the previous year.

A SOBERING THOUGHT

16. One can be thankful that the Indian steel industry, including our own Company, was able to make good progress and achieve a substantial rise in production and profit in a year when demand was low and stocks of unsold steel remained high. It is a sobering thought, however, to realise that the Indian steel industry's relative prosperity, as compared to the serious straits in which the industry abroad finds itself, was due in large measure to the slow rate of its growth during the past 20 years. Had the unrealistic expansion plans then laid materialised, our industry would have been in serious trouble today.

17. This state of affairs holds an important lesson as well as a warning in regard to future plans of development of our steel industry. In the lurid light of the heavy penalties for excessive capacity suffered in other countries in the form of catastrophic losses, idle plants and laid-off workers, it is now clear that with the ever growing cost of new steel plants, their high investment to output ratio, their low employment potential and the excess capacity already existing elsewhere, the right development strategy for the next decade or more will be to plan capacity growth mainly to match the growth of domestic requirements.

18. At the same time, India should fall in line with the world-wide trend towards up-grading the plain carbon mild steels which have so far formed the bulk of the Indian output. When steel was cheap in the first half of the century upto World War II, there was little incentive to save weight by using lesser amounts of higher grade steel in order to do the same job. Today, with steel prices now about nine times their pre-war levels, the use of micro-alloyed steels in place of plain carbon steels is becoming attractive and worthwhile for a large number of industrial and construction purposes because of their higher strength to weight ratio, their better external appearance and finish and their greater durability and resistance to corrosion.

SPONGE IRON ROUTE

19. Another reason against committing enormous funds to the building of more integrated plants of the present type, comprising coke ovens, blast furnaces and oxygen vessels upto the ingot stage is the likelihood that in the years to come much of the developing world's steel will be produced from sponge iron made by the direct reduction of iron ore rather than from pig iron produced in blast furnaces. The sponge iron route is already being adopted on a growing scale in other parts of the world, using mostly oil or natural gas as the direct reducing agent. As there is little gas or oil to spare in India but plenty of coal, the aim should be to use a sponge iron making process using coal as the direct reducing agent. As, furthermore, India's reserves of coking coal are small in relation to its reserves of iron ore, the process should be based on the use of low grade non-coking coals of which India has large reserves well dispersed throughout the country.

20. Shareholders will be glad to know that we have ourselves done a good deal of research at Jamshedpur on adapting known sponge iron making technology to the use of non-coking coal as the direct reducing agent. We have had encouraging results and are now considering a joint project with the Government of Orissa for putting up a sponge iron plant on a commercial scale in that State. The Steel Ministry is also planning similar research and development.

21. The adoption of the sponge iron route will have the added advantage of reducing the capital cost of steel plants and at the same time of decentralising the industry in smaller units wherever suitable iron ore and coal are available, thus spreading its employment potential. Furthermore, it would provide high grade raw material for existing electric steel furnaces.

THE ROAD AHEAD

22. The abovementioned trends and developments have an important bearing on our own future and on how best to put to profitable use the inadequate funds available to us each year from our allocations to depreciation and from such other retained earnings as the pricing policies of Government allow us to generate each year. Our principal aim in the past has been to achieve and maintain the highest possible rate of output in order to maximise income and minimise costs.

23. Because our plant as an old one, however, we were compelled to allocate available funds almost exclusively to replacements of old equipment and were not able to take advantage of the significant technological developments which have taken place in steel making in the past 25 years or so. For instance, the open hearth process of making steel has been largely replaced by cheaper and more efficient basic oxygen processes, while continuous casting plants are increasingly eliminating initial rolling of ingots in blooming and billet mills. Apart from new processes, the size of plant units, particularly of blast furnaces, has enormously increased and, with it, labour productivity which in turn has helped to absorb escalating capital costs.

24. In view of the huge increase in the capital cost of steel plant and machinery in recent years, during which Government continued to fix the prices allowed to the steel producers in both sectors at uneconomically low levels, a large-scale modernisation of our Works was totally beyond our means, and that will continue to be so until steel pricing policies are more realistic.

THE IMPERATIVE OF ECONOMIC PRICES

25. While in the present depressed state of the steel market In India a substantial increase in steer prices to bring them in reasonable parity with domestic prices abroad is unlikely in the immediate future. I hope Government will in due course realise the imperative need of allowing economic prices, particularly to basic industries, whether in the public or private sector. Instead, while denying economic prices to the steel producers, Government itself raised prices to steel users by levying heavy excise duties which, if reduced, could provide much-needed relief to the industry without affecting selling prices.

26. Pending an increase in ex-Works prices, the options before us are few but it seems clear that the right road ahead of us lies in a combination of such gradual modernisation as we can safely finance, along with a programme of upgrading the qualities of steel we make and of diversification downstream into products with greater value added than the plain mild steel products we have concentrated on upto now.

A HEAVY BURDEN

27. It is unfortunate for us that at this critical time, when we need every rupee we can spare to fulfil these objectives, we are compelled to allocate over Rs. 40 crores towards the development of our colliery output in order to fulfil Government's directive that we become self-sufficient in coal. As a result, although our programme of capital expenditure over the next five years exceeds Rs. 150 erores, including the colliery project, it does not include any significant item of modernisation. It does, however, provide some diversification, in a project for the manufacture of large welded beams.

28. Even this modest programme will require us to borrow some Rs. 30 crores to supplement our self-generated cash-flow, and we have applied to the financial institutions, through the Industrial Development Bank of India, for a loan of Rs.30 crores to finance our Capital Expenditure Programme, a major item of which is the colliery project.

CONVERTIBILITY CLAUSE...

29. As shareholders are aware, the previous Government made it a mandatory condition of any term loan exceeding Rs. 25 lakhs by Government institutions to a private sector company that a part of the loan should be convertible into shares at the option of the lending institutions. When we raised Rs. 20 crores from them in 1972, in our case the institutions concerned agreed that the conversion right would be enforce able only in the event of our failing to fulfil the terms of the loan. On the grounds, firstly, that the present colliery project is being undertaken solely at the instance of Government in order to release, for the benefit of the public sector steel companies, the coal supplied to us for many decades from collieries now Government-owned, secondly, that the entire Capital Expenditure Programme will not produce a single extra tonne of steel, and finally, that Government already has full control over the Company's affairs through its voting control of over 46% of our equity capital and through the all-embracing controls exercised by Government over the Company in other forms, we urged that the conversion clause in the new loan should be on lines similar to those of the previous loan. I am sorry to inform shareholders that despite the strong grounds mentioned above on which our request was based, it has been turned down. We have appealed to Government against this decision.

...A SERIOUS DISINCENTIVE

30. Government may not realise how serious a psychological disincentive to capital investment and industrial expansion the mandatory nature of this convertibility clause creates, particularly in companies in which Government already has a substantial shareholding. I sincerely hope that the new and more pragmatic Government we fortunately have today will, in the near future, abolish at least the mandatory feature of the clause and leave it to the lending institutions themselves to exercise their own judgment In the matter on purely commercial considerations.

31. The labour situation at Jamshedpur has continued its long record of peace and co-operation between Management and employees. In fact, the Company's organisation distinguished itself in the past year by achieving not only an exceptionally high output of finished steel, but also substantial savings in costs which balanced Increases in costs beyond our control. It is with particular satisfaction, therefore, that I conclude my statement this year with an expression of the Board's and my own warm appreciation of the excellent work put in by Management and staff at Jamshedpur and elsewhere during the year under review.

Chairman's Statement for the year 1977-78

Bombay, 19th July, 1978

ECONOMIC SCENE: A PUZZLE

In the year under review, the Indian economy presented, and continues to do so, a puzzling combination of contrary elements: on the one hand, of a splendid array of favourable factors, including a substantial rise of 11 to 12% in agricultural output and 6% in real income, relatively stable prices and a spectacular rise in foreign exchange earnings, but, on the other, of continuing poverty in the midst of an abundance of wage goods, of slack industrial production and investment, of growing labour unrest, of infrastructural shortages, particularly in regard to power, transport and coal, and of a general feeling of uncertainty and lack of confidence both within industry and in the public mind.

2. What are we in industry to make of such a situation? Should we feel exhilarated and encouraged by the country's and our own positive achievements of the past year, or should we still be apprehensive or sceptical about the future? In the tightly controlled economy in which the private sector has to operate, a straightforward answer to that question would be possible only on a clear indication of what Government's economic policies are going to be in the immediate and near future, particularly in regard to the role of the private sector on India's industrial stage.

NEW INDUSTRIAL POLICY STATEMENT

3. In this context, Government's Statement on Industrial Policy, laid before Parliament in December 1977, was both timely and important, all the more so as it was the first such comprehensive declaration of Industrial Policy issued in over twenty years. While we might not agree with some of its contents, it had at least the merit of being as clear-cut and categorical as could be expected from a document which sought to reflect and reconcile the socio-economic beliefs and prejudices of the diverse elements of the party in power.

4. At last we knew, or thought we did, what exactly was expected of the organised sector of industry and, particularly, of those of us who have the misfortune of being treated as belonging to 'large houses', often erroneously described as monopoly houses, and what Government would or would not permit us to do.

5. Fai r enough, provided we could be sure that the new policies would be adhered to for a reasonable period, say, five years. Unfortunately, and within only seven months, pronouncements began to emerge from high quarters, which, if implemented, would nullify many of the basic contents of the December Statement. Dark hints have been given and publicised in the Press of possible nationalisations and, equally alarming, of further amendments to the Companies Act and to the rules and regulations which already strangulate the functioning of joint stock companies, in some cases to a point of asphyxia.

6. On the price issue, the new Industrial Policy Statement had contained the welcome statement that prices of industrial products, when controlled by Government, would allow a return sufficient to provide, in addition to a reasonable dividend, for adequate funds to plough back for modernisation and growth. Yet, only six months later, when Government announced a major price revision for the steel industry, the increase in ex-Works realisations did not carry out this undertaking and, in fact, did not even compensate fully for increases in costs demonstrably beyond the producers' control.

BACK TO SQUARE ONE

7. In the light of these recent developments, we find ourselves back to square one and almost as uncertain as we were before as to what is really in store for us. There are, no doubt, many welcome ideas and intentions expressed in the new Policy Statement, particularly those relating to the re-orientation of Government's basic economic policies so as to give priority to promoting rural development and benefiting the poorer segments of our population which were neglected in the past, but it is clear that most of the old dogmas and prejudices concerning the private sector continue to dominate Government's mind in economic matters.

AN UNFOUNDED CHARGE

8. While I cannot, in this brief review, refer in any detail to the contents of the Statement, I feel I must answer two specific accusations made in the Statement against 'large houses', charging them with a rate of growth disproportionate to the size of their internally-generated resources and largely based on borrowed funds from public financial institutions and banks. This criticism is, I respectfully submit, both incorrect and grossly unfair for a number of reasons. First, because Government chooses to express the growth of a company only in terms of the growth of its assets, disregarding the fact that much of such growth merely reflects the tremendous inflation which has swollen the cost of such assets in the last decade; second, because it fails to take into account whether or not productive capacity has grown; third, the calculation of the value of the assets astonishingly fails to deduct current liabilities while including current assets.

A STRIKING EXAMPLE

9. A striking example of how wrong and unfair such a formula can be in assessing growth is revealed by the figures of our own Company. On the completion of the expansion of our rated capacity at Jamshedpur from one to two million tonnes in 1959, our assets, according to Government's definition, amounted to Rs. 170 crores. Today, eighteen years later, the figure is Rs. 328 crores and we are treated as being almost twice as big although our capacity has throughout remained at two million tonnes. In these eighteen years, however, we had to spend no less than Rs. 260 crores merely to maintain the same effective capacity.

10. The accusation that the growth of 'large houses' has been mainly financed by loans from public financial institutions and banks is even more unfair as it ignores two important facts. With the prices of products of most large industries controlled by Government year after year at uneconomically low levels, as, typically, in the case of steel prices, internally generated funds, including allocations to depreciation, are barely sufficient to pay for necessary replacements and, therefore, leave nothing for modernisation or expansion.

11. Companies have no option, therefore, but to resort to borrowings. With the nationalisation of banks and the ban on the establishment of private sector financial institutions such as exist in all other non-communist countries, Government have created for themselves a virtual monopoly of lendable funds. To whom, then, can companies turn for their legitimate borrowings but Government?

12. To round off this part of my Statement, I would like, despite the doubts and uncertainties that may still cloud our minds, to reassert my unshakable confidence and belief in the high destinies of this great country of ours and my persistent hope that, however hard the road ahead may be for dedicated and unselfish private enterprises such as ours, we shall continue to be allowed to serve the nation as we have done for the past seventy years.

YEAR'S RESULTS—AN UNEXPECTED BURDEN

13. Coming to the year's accounts, shareholders will have noted from the Directors' Report and the Profit and Loss Account that a major reason for the lower profit before taxes, despite a substantial increase of Rs. 27 crores, or 8% in gross income, was the large increase in expenditure on wages itself, mainly due to the extra bonus we had to pay and debit to the accounts of 1977-78, not only in respect of that year but also of the previous year. In view of the heavy draught such extra payments have made and will make for at least another year on the Company's net profits, I feel that shareholders are entitled to some elucidation of the somewhat unusual circumstances in which the extra payments arose.

14. While under the Bonus Act the payment of bonus is normally to be computed on the allocable surplus, subject to minimum and maximum percentages of annual wages, the Act permits employers and employees to enter into an agreement under which it is calculated on production or productivity instead of on profit, subject to the same maximum and minimum.

15. With effect from 1st April 1976, the Government's integrated plants under SAIL and our own Company entered into such an agreement with the unions for linking the bonus to production and productivity, instead of profit, for a period of three years, under which, as stated in the Directors' Report, Rs. 2.29 crores was paid by us last year in respect of 1976-77. In our case, the bonus amounted to about 6% of gross wages (basic + dearness allowance) earned by employees of the Company during that year. When, by an Ordinance dated 3rd September 1977, Government restored the minimum bonus of 8.33%, which had been abrogated by the previous Government from 1975, it would logically have required only that the bonus paid for 1976-77 be increased to 8.33%. However, in the case of the Bhilai and Rourkela steel plants, Government agreed to make the 8.33% minimum payable over and above the bonus due under the production and productivity formula and to amend the formula accordingly, with retrospective effect. Although we protested against Government's decision as being neither in keeping with the intentions of the Bonus Act nor fair to the producers, we had no option but to fall in line, at the heavy extra cost of Rs. 3.31 crores for 1976-77 and a like amount for 1977-78. We do not, however, grudge the windfall which has unexpectedly accrued to our workers whose hard work was largely responsible for the high output of the plant in the past two years.

DIVIDENDS

16. Because of price policies and constraints on dividends imposed on us by Government or by the financial institutions from which we took loans, our dividends on Ordinary shares have often in the past been less than legitimately expected by our shareholders. I hope they will recognise that the Board has, this year, done the best it possibly could for them in recommending a higher dividend, despite the reduced profit.

PRICE INCREASE—A DISAPPOINTMENT

17. While we are grateful to Government for having responded to the representations of the main producers for an increase in steel prices and for the admirably expeditious manner in which the Ministry dealt with and disposed of the matter once detailed discussions on the subject began with the industry, the increase finally granted by Government with effect from 5th June this year is disappointing as it does not meet the essential requirements of the industry, whether in the public or the private sector. First, the increase leaves, partly uncompensated, the increases in costs beyond the producers' control borne since October 1973, when the last major revision of prices was granted; second, the revised ex-Works prices do not even provide the industry with the capacity to finance from internal savings the continuous replacement of worn-out or obsolete equipment necessary to maintain the plant's productivity and efficiency.

18. In regard to the first point, the position is that, since October 1973, our own costs, fairly representative of the industry as a whole, increased, on the average, for causes demonstrably beyond management's control, by Rs. 469 per tonne, including the increase in bonus payments referred to earlier. Of this, Rs. 191 could be directly attributed to Government or Government-approved action such as increases in excise duty, railway freight, power tariffs and wages, and Rs. 278 to increases in the cost of purchased coal, raw materials, fuel and other items. During the same period, the Company was allowed, in various forms and at various times, additions to its net ex-Works prices totalling, on the average, Rs. 133 per tonne, including a Rs. 80-per-tonne increase to compensate for the increase in the prices of coal and coke and under other items, leaving Rs. 336 per tonne as uncompensated cost escalations. Against this, the June revision has granted us an average increase of Rs. 175 per tonne, leaving Rs. 161 still uncompensated.

INDUSTRY'S LOW PRICES IN CONSUMERS' INTEREST ...

19. I have, over the years, in almost every Chairman's Statement and in innumerable representations to, and discussions with, Government, pointed out that ever since the end of World War II, when war-time price controls were withdrawn, the steel industry had been made to subsidise the consumer by having imposed upon it uneconomically low ex-Works prices which were about half the world domestic prices. In my 1974 Statement, I pointed out that, over the intervening 30 years, the main producers had been deprived of gross revenues amounting to some. Rs. 4,500 crores, of which the share of our Company alone had been about Rs. 1,600 crores. Today, the latter figure would be nearer Rs. 2,100 crores, of which about Rs. 900 crores would have remained in our hands after tax and provided us with ample funds for modernisation and, with Government's approval, even for some degree of expansion.

20. When Government established the public sector of the industry, the hope arose in my innocent breast that Government would recognise in its own interests, the imperative need for basic industries to grow and to modernise. No change, however, took place in Government's pricing and the ex-Works prices allowed to the main producers in both sectors continue to be around half the domestic prices earned on the average in the main steel producing countries of the world.

...DENIED TO CONSUMERS

21. The credibility of the argument invariably advanced against pleas for fair and economic steel prices, that the consumer's interest must be protected and the price line must be held, is somewhat dimmed by the fact that, because of excise and other levies, the consumer paid on the average Rs. 570 per tonne more than allowed to the producer before the last revision, and about Rs. 670 per tonne, or 42% more than the ex-Works prices today. Of this addition, no less than Rs. 400 per tonne is represented by excise duties.

22. The question whether it is economically sound and justifiable to charge a heavy excise duty on such a basic material as steel, the cost of which percolates to all finished products made of or incorporating steel, is one that can be argued both ways, but I submit that it does not make sound economic sense to allow the producers excessively low ex-Works prices, allegedly in the interests of the consumer, and then to take from the latter at least twice as much as has been denied to the producer.

23. To conclude this chapter on the price revision, some shareholders will, no doubt, have already calculated that for the ten months of the current year for which the new prices will apply, the additional gross revenues to the Company will amount to about Rs. 20 crores, and to Rs. 24 crores in 1979-80, assuming an annual sale of about 1.4 million tonnes of steel. I trust that in projecting their own estimates of profits and dividends, they do not overlook inevitable increases in costs and the limit on dividends imposed by Government.

MODERNISATION PROGRAMME

24. Shareholders will, I am sure, have read with interest the reference in the Directors' Report to the substantial programme of modernisation at present under the consideration of the Company in consultation with the Government of India. Striking evidence of the inflation that has taken place in the world since the rated capacity of our plant was doubled to 2 million ingot tonnes and 1½ million tonnes of finished steel between 1954 and 1959, is that the estimated cost of replacing less than half of our steelmaking and finishing capacity with new facilities using modern equipment and processes will be more than double the Rs. 110 crores we spent then on building what was virtually a complete integrated million-tonne plant. The proposed programme, if implemented, will be additional to our rolling programme of capital expenditure on the Works, Town, Mines and Collieries which is estimated to cost about Rs. 160 crores, including Rs. 40 crores on the expansion of our West Bokaro Colliery to make the steel plant totally self-sufficient in its coking coal requirements. Thus, the total capital expenditure over a period of about five years could be well over Rs. 400 crores.

25. The problem of how such a large programme could be financed will be a difficult one to solve. It is worth noting, however, that against the highest ever term debt borne by the Company in 1958, when borrowings for the Two Million Ton Programme were at their peak, which was Rs. 61 crores, our term debt today is Rs. 27 crores. These figures, and our excellent present Term Debt/Equity ratio of 0.20:1 provide some indication of the Company's substantial capacity for additional term borrowings. If and when the modernisation programme is ripe for a final decision, the shareholders may be assured that the Board will give its financial aspects the most careful consideration to ensure that financial stability and profitability are safeguarded.

26. In conclusion, while the profitability of the Company during the past year was disappointing because of the unforeseen extra burden of expenditure beyond its control which it was made to bear, its performance from a production and sales point of view was outstanding. For an old plant such as ours, the youngest part of which is already twenty years old and most of the rest over fifty years old, to achieve all-time production records in a number of its departments and an overall output well in excess of 100 per cent of its rated capacity is remarkable by any standard. It could not have been achieved without the united efforts of the entire work force, the members of which, under the dynamic leadership of our Managing Director, displayed an exemplary sense of responsibility, discipline and devotion to duty for which they have earned our warm thanks and appreciation. An important contributory factor, and perhaps the most heartening feature of the Steel Company's operations, lay in the cordial relations and high degree of co-operation between the Company and its 60,000 employees at Jamshedpur and elsewhere—a record probably unsurpassed anywhere in any organisation of comparable size.

Chairman's Statement for the year 1978-79

Bombay, 12th July, 1979

A GOOD YEAR BUT...

THE past year was generally a favourable one for Indian industries: the earlier recession was converted into a virtual demand boom for their products; and the price situation remained stable, thanks largely to the massive investments on irrigation and fertilisers in recent years which yielded record crops during the year.

2. The groundwork thus seemed to have been laid for a major investment boom thereafter, provided Government adhered to practical, resultoriented policies and refrained from the recurring ideological assaults on the private sector which had done so much harm in the past.

... AN UNCERTAIN FUTURE

3. While it may thus be said that, on the whole, the past year was one of cheer, I wish one could be as happy about the performance of the economy during the current year, notwithstanding the optimistic picture painted by the Minister for Industry in a Press interview on the 6th of July. I sincerely hope he proves right, but the portents are anything but encouraging as, on the one side, we see, throughout the land, factories shut down or crippled by lack of coal or power or by industrial disputes and, on the other, the resurgence of inflation of which we had been largely and mercifully free for the previous four years.

4. On the purely economic front, the most serious of the signals of heavy weather ahead is undoubtedly the virtual collapse in some regions, and repeated interruption in others, in the supply of coal and electrical power, aggravated by the failure of the Railways to meet essential requirements. The situation in regard to these most important and basic of the infrastructural necessities of industry is so serious as I write this report, and its crippling effect permeates to so many industries, that I propose to devote a good part of this Statement to it.

THE MAN-MADE CRISES OF POWER ...

5. This is one crisis for which no blame can be attached to the private sector for, with the means of production and distribution of coal and power virtually monopolised by Central or State Governments, the responsibility for providing these basic needs of industry, and for failure to do so, rests squarely with them and with no one else.

6. While it is only fair to recognise that the task is indeed an onerous one, involving as it does widespread operations in a large number of units spread over vast areas, it is difficult, however sympathetic one may be to the authorities concerned, to find any acceptable excuse for their having allowed the present crisis to develop despite the many signals and warnings of impending disaster in these areas which were so clearly evident in recent years.

7. I know from personal experience, having myself headed an important public sector enterprise for twenty-five years, that the public sector can be efficient, at least when reasonably free from excessive bureaucratic and ministerial interference. I am, therefore, as much opposed to the general criticism of inefficiency levelled at the public sector as I am to the constant attacks against the private sector from the Government side, but it is impossible to discuss the power crisis which cripples industry from time to time without comparing the performance of the two sectors.

8. While the three fairly large thermal power systems still in the private sector, namely those of the Calcutta Electric Supply Corporation, the Ahmedabad Electricity Company and the Tata group in Maharashtra, have maintained normal operations to world standards under the same difficult conditions, the performance of the great majority of the units in the public sector has been a dismal one.

9. It is generally accepted that every megawatt of installed power rendered avoidably unproductive because of poor maintenance of equipment or management results in a loss of industrial production of about Rs. 1 crore per annum. Operating the 12,550 megawatts of installed thermal generating capacity in the public sector at the latter's low standard of productivity has thus resulted in a loss of 25 to 30 million units per day, equivalent to what should be the normal output of 2,000 megawatts of generating capacity and, therefore, to a loss to the country of about Rs. 2,000 crores per annum.

...AND OF COAL

10. The present situation in regard to coal is just as serious. In some ways it is even worse. Power made available to industry, inadequate as it may be, is at least of reasonably uniform quality, except for fluctuations in voltage and frequency in some areas. In the case of coal, however, not only are industries and essential utility services made to operate on a hand-to-mouth basis or even to close down altogether for hours and days on end with no coal in stock or in sight, often at the risk of serious damage to equipment, but such coal as is supplied to them is of a quality which is probably the worst in the world. Indian coals, by their nature and composition, are unfortunately high-ash coals, i.e. with a high content of incombustible material, much of which however could and should be, but is not, removed in washeries at the collieries, except in regard to coking coal supplied to the steel plants. As if that were not enough, a considerable amount of stone and shale is mined with the coal and shipped to the unfortunate consumer who is forced to accept, along with the excess ash in the coal, a large proportion of unwanted material, and pay for the cost of transporting it. I say 'forced' advisedly, because complaints to the coal authorities are met with a blunt 'take it or leave it' answer.

PASSING THE BUCK

11. Every industry in the country, including the steel industry, was adversely affected by shortages or irregularities in the supply of its coal and power needs. The situation has further deteriorated during the current year, and in the first quarter alone the loss of production at the plants of the five main steel producers was about 140,000 tonnes, of which 30,000 tonnes pertained to Jamshedpur. If the same situation prevails in the rest of the year, the loss of production will exceed half a million tonnes and ultimately involve an increase of Rs. 160 crores in the country's import bill. For this state of affairs the coal authorities blame the Railways for lack of wagons and the power authorities for shortage of power; the power authorities blame the coal authorities for lack of coal and the Railways for lack of wagons to transport it; the Railways deny any default on their part and the Ministry of Energy assures us that everything is being done and all will, soon be well.

12. In the face of such a situation, one may be permitted some astonishment at finding a leading Government spokesman asserting that there was nothing to be apologetic about and advocating the nationalisation of more industries including our own Company and Telco.

13. I am sure you will all have been following, possibly with some surprise, the strange course of events which compelled me, in January, for the first time in my long career as your Chairman, to intervene publicly in Party matters by addressing directly the National Executive of the Janata Party. As my letter and memorandum were widely publicised in the Press, I need not say more about it here except to congratulate and thank the leaders of our Government and of the Party who, recognising the futility of such populist policies, refused to support them. Even more gratifying was the spontaneous intervention of the Tata Workers' Union who strongly protested to Government by letter, telegram and in person, against the threat of nationalisation – a heart-warming demonstration of their confidence in our management and of the unique relationship that binds together our Company and its employees, perhaps Tata Steel's greatest asset.

14. Faced as we are year after year with threats of nationalisation or other measures aimed at the ultimate elimination of the private· sector, I often wonder why is it that we must always took to our northern neighbour for inspiration for our economic policies when it is in the non-communist countries to the West and to the East, such as Germany and Japan, and even in some of our Asian neighbours, that the greatest prosperity and quickest progress has been achieved? Not by restrictive, pseudo-socialist controls but by allowing reasonable play to market incentives and deterrents, by ensuring in full measure the supply of the infrastructural needs of agricu1ture and industry, by encouraging growth and by limiting Government's role to policing, when necessary to prevent abuses, and mainly to monitoring and co-ordinating economic activities so as to ensure just distribution of growing wealth.

OUR OWN AFFAIRS

15. Turning, at last, to our own affairs, the past year has been an eventful one, very satisfactory from the profit point of view, but disquieting in regard to other aspects.

16. As was to be expected, the steel price increase, averaging Rs. 175 per tonne on our product-mix, effective from 6th June 1978, was the main contributing factor to our record revenues and profit which would have been still higher had we not lost 60,000 tonnes in output, mainly owing to the coal and power shortages mentioned earlier which began to manifest themselves in the second half of the year. The excellent performance of the plant, which enabled it, despite these and other difficulties, to produce once again virtually one hundred per cent of its capacity and to break a number of departmental records, reflects the high standards and effectiveness of the programme of maintenance and replacements devoted to it year after year. The price we pay to maintain maximum output is high but necessary, and in fact unavoidable, in an old plant such as ours.

17. Had not the unrealistically low ex-factory prices allowed to the steel producers during the last 40 years starved us of funds to plough back into continuous modernisation, the Jamshedpur plant would be, today, not only substantially larger but also more efficient and productive.

THE IMPERATIVE OF MODERNISATION

18. The imperative need to keep a plant young through continuous replacements and renovations is unfortunately one of the clear 'lessons of industrial history of which other countries have taken full advantage but which our Government refused to learn or accept all these years. Their decision to create a Steel Development Fund out of price increases to be used mainly to finance modernisation and development is, therefore, a step in the right direction which may be welcomed, provided the funds so realised are fairly allocated to the various plants in relation to their needs and in reasonable proportion to the amounts they have contributed to the Fund through the sale of their steel. Assuming that the Development Surcharge remains as it is today, we expect our own contribution to the Fund to be more than Rs. 200 crores over the next five years.

19. This brings me to our Modernisation Programme which is now expected to cost Rs. 160 crores and to be completed in about 36 months from the time the final decision is taken, financial arrangements are made and orders placed. As stated in the Directors' Report, the main item of the Programme is to replace an old Steel Melting Shop commissioned in 1923, by a new shop using a modem oxygen process. With part of its output of steel directly cast into billets, it will make better steel and increase overall output by about 180,000 tonnes of steel products thus saving approximately Rs. 40 crores a year in imports. In addition, it will enable shutting down still older Steel Melting Shop dating back to 1912 and a saving of Rs. 7 crores a year in fuel oil. Apart from the new steel-making facilities, the Programme includes some modifications to our Blast Furnaces and Rolling Mills, a Bar Forging Unit with heat treatment facilities, and a fair amount of initial spares. Despite its heavy total capital expenditure, the Programme is expected to yield a reasonable financial return.

20. Large though this Programme may seem to shareholders, it should be borne in mind that, by the time it is completed, hopefully in about 4 years' time, there will still be parts of the plant at Jamshedpur which will be very old. If the Company is to survive as an efficient producer in the industry which it pioneered 70 years ago, it must, from time to time, undertake projects of modernisation, as indeed all steel plants including the Government steel plants must as they age and their equipment and processes become obsolete.

FINANCING THE PROGRAMMES

21. Our Modernisation Programme estimated, as I have said, to cost Rs. 150 crores will be superimposed on our normal 5-year Rolling Programme of continuous replacements and minor improvements, on which we expect to spend, in the 1979-84 period, approximately Rs. 165 crores, including the balance of about Rs. 30 crores on the development of our West Bokaro Colliery. Thus the total amount to be spent on both the Programmes within a period of about five years will exceed Rs. 300 crores. This is clearly beyond our capacity to finance all at once out of our own resources which, derived mainly from depreciation, allocations to the investment allowance reserve and undistributed profits, are estimated to be only of the order of Rs. 145 crores during the next five years after repaying existing borrowings.

22. As stated In the Directors' Report, we have already arranged to borrow Rs. 30 crores from the financial institutions and we are planning to borrow in the form of foreign loans and deferred credits about Rs. 50 crores for equipment to be imported for the Modernisation Programme. On present estimates we would thus be short of total requirements by approximately Rs. 80 crores.

23. Considering the much larger amount we will, through our sales, have contributed to the Steel Development Fund, it is reasonable and logical to hope that this shortfall will be met from the Fund and we have approached Government to that end. We have no idea as yet as to the form that withdrawals from the Development fund will take as the modalities are still under the consideration of Government.

RELIEF FROM CONVERTIBILITY

24. In regard to the Rs. 30-crore loan, I am happy to report that Government have been good enough to agree that the right of conversion into shares would not be exercised by the financial institutions, provided we do not fail to repay or otherwise service the loan. This was in response to our representation that the loan was required for implementing a project taken up solely at the instance of Government which had directed us to develop our West Bokaro Colliery in order to become self-sufficient in coking coal, and so be able to release upto 0.6 million tonnes per annum for the Government steel plants.

25. We are grateful to Government for this concession similar to the one agreed to in connection with earlier borrowings of Rs. 20 crores, and I sincerely hope that it will be a precursor to a more liberal and realistic policy in regard to industrial term finance from Government financial institutions.

26. It is relevant to point out that the inclusion of a convertibility clause in every term loan in excess of Rs. 25 lakhs given to private sector companies was made mandatory by Government many years ago when the total holdings of Government directly or through banks and Government financial institutions were much smaller than they are today.

27. If for political or other reasons Government find it difficult to do away with the mandatory nature of the clause, I would urge that they at least agree that the financial institutions should not acquire between them, more than, say, one-third of the equity capital of a company, whether by purchase in the market or by subscription to new issues or by conversion of loans into shares. If such a policy were to be announced, I am sure that the fear instilled in the corporate sector by the mandatory convertibility clause would disappear, and with it a serious deterrent to fresh investment in development or modernisation.

COSTLY WAGE SETTLEMENTS

28. Following the expiry, on 31st August 1978, of the 4-year Wage Settlement for the Steel Industry, a new settlement has been under negotiation through the Joint Consultative Machinery set up by Government for the Steel Industry. An agreement has been arrived at with retrospective effect from 1st September 1978 which, translated into a plant level agreement with the Tata Workers' Union on 2nd July 1979, imposes on the Company an unprecedented heavy additional burden of nearly Rs. 9 crores per annum for another 4 years, i.e. upto 31st August 1982.

29. The Wage Settlement for the Coal Industry arrived at for a period of 4 years from 1st January 1979 imposes a burden of Rs. 3.4 crores in the Wage Bill at our Collieries. We may also expect a wage increase in respect of the mine workers and at Adityapur, whose last settlements expired on 31st March 1979. The combined effect of these wage settlements will thus put up the Company's total Wage Bill by nearly Rs. 15 crores, or Rs. 100 p.t. of saleable steel, including the contributions to Provident Fund and Retiring Gratuities.

30. The Steel Minister had indicated that there would be a six-monthly review of costs by the Bureau of Industrial Costs & Prices to consider what compensation should be given to the producers for cost increases beyond their control and that a part of the accretion to the Steel Development Fund would be utilised for compensating cost escalations. We have urged that Government should take note of the substantial cost increases resulting from the wage settlements and other inflationary factors and .give suitable relief to the producers.

SOCIAL AUDIT

31. Your Company has always been conscious of the fact that its obligations extended beyond the normal corporate responsibilities of a Joint Stock Company to its shareholders and included social obligations to employees, consumers and the national economy. The advent of Independence brought to us an added sense of duty to the nation and society as a whole as well as to the community in the midst of which our activities are located. Shareholders will remember that in 1970, in order to formalise these principles, our Memorandum and Articles of Association were amended to include a clause (Article 3A) which specifically called upon the Company to "be mindful of its social and moral responsibilities to the consumers, employees, shareholders, society and the local community." My colleagues and I now feel that the time has come when our belief that the Company has indeed lived up to its social and moral obligations should be independently confirmed. With that object in view, we have recently decided that, some time before the end of the year, a panel of four eminent and respected persons totally unconnected with the Company or its activities and enjoying public confidence should undertake such a 'social' audit. The members of the 'audit' panel may consist of or include a retired Judge of the Supreme Court or of a High Court, a Member of Parliament, a trade unionist and a sociologist, whose report will be made public. I hope shareholders will approve of this decision.

BOARD CHANGES

32. Since the close of the year under review, two important changes have taken place in the composition of the Board, represented by the loss of our Vice-Chairman, Mr. Sumant Moolgaokar, who resigned on 11th July 1979, and by the reappointment as a Director and Deputy Chairman of Mr. N. A. Palkhivala on his return to India on completing his two-year assignment as lndia's Ambassador to the U.S.A.

33. Both as a member of the Board since 1st April 1966 and before that as a Director of Tata Industries Limited, the Company's Managing Agents, Mr. Moolgaokar made an invaluable contribution to the progress of the Steel Company. The Directors have recorded their deep appreciation of the services and wise counsel of this great industrial administrator to whom goes the main credit for the remarkable success and rapid development of our sister company, Telco.

34. I normally conclude my Statement to you with a well deserved reference to the specially good work and efforts of all our employees at Jamshedpur and elsewhere. Such expression of appreciation and gratitude has never been more justified than in respect of the past year in which the Company could not have achieved in the face of severe input shortages, the outstanding results presented to you, without the hard and devoted work of the entire work force under the leadership of our Managing Director. I am sure that shareholders will welcome the Board's decision to appoint Mr. R.H. Mody Vice-Chairman.

Post Scriptum:

The news of the fall of the Janata Government came after this Statement was released for printing. What the political outcome and the impact on the economy of this event will be is still unknown. All we can hope, somewhat against hope, is that a stable Government will emerge which will give precedence over political issues to the urgent economic problems and needs of the country.

1960-69

The Winds of Change

Chairman's Statement for the year 1979-80

Bombay, 8th August, 1980

AN APOLOGY

Before referring to the results of the year under review, I wish to apologise to the shareholders for the month's delay in closing the accounts and holding the annual general meeting. This delay was decided upon in the interests of the shareholders in the hope, on the one hand, that the Company would be informed of compensatory payments for cost escalations during 1979-80 granted by Government in time to include them in the revenues of the year and, on the other, that Government's approval to the Company's request for lifting the 12% dividend restriction imposed by them for three years from 1st April 1978 to 31st March 1981 would also be received before the Board met to approve the accounts and declare the dividends recommended to the shareholders. I shall refer to both these points in the course of my Statement.

CRIPPLING SHORTAGES

2. The past year, like the previous one, was one of crippling shortages in coal, power and rail transport which made it impossible for the steel industry, as for most other industries in the country, to operate to the full extent of their capacity. The loss of saleable steel from our own plant was around 150,000 tonnes valued at some Rs. 45 crores. We were unable to maintain even the reduced rate of production achieved in 1978-79, despite heroic efforts including the transport by road of large quantities of coal from the collieries to Jamshedpur. We are today moving by road, at an additional cost of about Rs. 60 per tonne, an astonishing 80,000 tonnes or so of coal a month, or nearly one million tonnes a year, representing about a third of our total requirements. Many other industrial consumers are compelled to resort to the same means of ensuring minimum supplies of coal and other materials which should normally have travelled by rail, consuming in the process large quantities of diesel oil. Few things, surely, could be more wasteful for the country than to burn a costly imported fuel to transport a cheap local fuel.

3. The situation in regard to the generation and supply of electric power was equally bad, itself also partly or largely due to shortage of coal. So far as we and other companies at Jamshedpur are concerned, against a contracted supply from the DVC of 100 MVA, actual receipts not only averaged less than half during the year but also fluctuated widely from day to day. Were it not for our captive generation, our output of steel, and with it our profitability, would have collapsed.

AN INTOLERABLE BURDEN

4. The damage and loss caused to the economy by these infrastructural and other shortages greatly exceeded the mere value of the products or services they failed to deliver because of the tremendous multiplying effect which, directly or indirectly, affected the production and the cost of all economic activities of the country. An intolerable burden, estimated at no less than Rs. 7,000 crores, was thus inflicted on the economy during the year, which also suffered heavily from the loss of some 44 million industrial man-days of work due to labour disputes and from the estimated loss of about Rs.720 crores of production and Rs. 55 crores of wages lost by the employees themselves. That our Company itself suffered no such loss is something to be grateful for, thanks to the outstandingly good labour relations and exemplary cooperation our management have continued to maintain with our work force, but in the rest of the country the burden of industrial strife and indiscipline remains a heavy one indeed, which the country can ill-afford to bear.

OVERMANNING AND INDISCIPLINE

5. There is a tendency to put on their management most of the blame for the poor performance of public sector enterprises and for the resulting shortages afflicting the country's economy. I do not agree and believe that the blame should be shared by Government and legislatures at the Centre and in the States, who have unduly politicised the supervision and control of such enterprises and denied their management the autonomy essential to their efficient functioning. Their low output and labour productivity have been due in large part to gross overmanning, itself a source of low morale and indiscipline.

6. The need to maximise employment opportunities in a country such as ours is undisputed, but perhaps the worst way of doing so is to overman capital-intensive industries as has been done in virtually all large public sector enterprises. Such industries as the power generating and steel industries have to bear heavy financial costs, because of the large capital investments they require. To burden them in addition with excessive labour costs due to overmanning and also with the indiscipline, low morale and operational inefficiency which overmanning automatically causes, makes no sense. It is, in fact, economically suicidal in the long run for, as Indian wages, housing, medical and other welfare costs continue to rise and approach those of the more developed countries, as they will in the decade or two ahead, our capital-intensive industries cannot remain competitive or even survive if they have to bear both high capital and high wage costs.

NEED FOR ACTION

7. In the political situation which existed in India during the past two or three years, it can perhaps be understood that the Janata Government, riven with internecine quarrels and serious political inhibitions, was incapable of exercising the strong and effective authority required to ensure law and order in the country and discipline in industry. Similarly, the party in power today, although politically much stronger and united, may have found it politically inexpedient to take the unpopular steps necessary to bring about order and discipline until after the State elections. Today, however, after the success achieved by it in the State elections, all that is needed is the will to act.

8. On the strength of her experience, her resolute character and her dedication, our Prime Minister is clearly equal to the difficult and onerous task which must be performed if the problems plaguing our country are to be overcome. I am confident that despite the grievous loss she has recently suffered, for which the hearts of all go out to her, Mrs. Gandhi will undertake that task and pursue it with the decisiveness and courage which she is so well known to possess.

PRAISEWORTHY PERFORMANCE

9. Viewed against the dismal background of severe shortages of essential inputs, the Company's performance in the past year may be considered satisfactory. It was, in fact, much better than it would have been but for the unceasing efforts of all concerned to overcome or minimise the difficulties in the way. Special praise indeed is due to the management and workers at Jamshedpur for breaking production records in some departments of the plant despite such adverse conditions.

10. Shareholders will, I am sure, be particularly pleased to find that despite lower production, the Company was able to maintain and even slightly enhance its profitability, thanks to the combination of factors explained in the Directors' Report. The profit would, in fact, have been higher by a few crores had Government completed earlier its review of the in creases in costs in the steel industry and announced compensatory payments for cost escalations to the main producers.

A FORMIDABLE APPARATUS

11. Apart from the struggle to maintain production, the Company's energies were concentrated during the year on finalising its Modernisation Programme, on securing the resources to finance it, both in rupees and in foreign exchange, and on obtaining the innumerable approvals and clearances required from Government. Although Government have in the past decade made genuine efforts to simplify procedures, and we are grateful for the generally helpful attitude of the various Ministries and Departments with whom we have been in contact for the last two years or so in connection with this project, their formidable licensing and regulatory apparatus is so complex and all-pervasive that it takes as long today as it ever did to obtain economic decisions from Government and very much longer than 25 years ago when we undertook the doubling of our plant's capacity from one million to two million tonnes per year. Even after satisfying the Planning Commission and all the Ministries concerned individually and collectively, we still have to obtain clearance from the Company Affairs Department of the Law Ministry.

12. It would be unfair to blame the officials concerned for the long delays which inevitably follow from such cumbersome and time-consuming procedures, for they have to comply with those laid down by Government, but one does at times wish they were interpreted with greater emphasis on intent than on form and legalities. Unfortunately, as new rules, regulations, guidelines and procedures are added year after year, and are superimposed on the earlier ones, the task of getting through the various layers becomes an ever more time-consuming one. I would earnestly urge that the time has come for Government to review from the bottom up the whole approval and licensing machinery with a view to cutting through the tangle of red tape and applying summary procedures wherever possible.

THE HEAVY COST OF DELAY

13. Government do not perhaps realise the heavy cost to the country of long delays in approving industrial projects in this era of escalating prices and costs. Quotations are invariably time-bound and subject to escalations. Where imports form part of an industrial project, delay not only means a more costly project but also a greater drain of foreign exchange. Our own Modernisation Programme has been under discussion with Government since November 1977, when we made our first presentation to the Steel Ministry who were good enough to inform us that they considered it a project of national importance. One would have thought, therefore, that licensing permits and MRTP clearances would have been an easy and quick process if not a near formality. Unfortunately there seems to be no provision in Government procedures and practices to treat with despatch even projects such as ours, which are clearly non-controversial, involve no significant expansion of production, no increase in economic power and have strong Government support.

MODERNISATION – THE COST

14. The cost of our Modernisation Programme is now estimated at Rs 200 crores, of which the main items are, Rs 80 crores for the new Steel Melting Shop, Rs 20 crores for continuous casting facilities, Rs 30 crores for an oxygen plant and Rs 12 crores for a refractories plant. As shareholders will have noted, the above figure is higher by Rs 50 crores, or 33%, than the figure of Rs 150 crores I mentioned in my Statement last year. The excess is due mainly to escalations in prices since the estimates were first prepared, to the addition of a refractories plant essential to the needs of the new Steel Melting Shop which we had hoped would be established by our refractory suppliers and to a Rs 20-crore cushion in addition to the contingency provisions included in the estimated costs of the various items of the Programme.

FINANCING THE PROGRAMME

15. The task of financing in four years a total capital expenditure of about Rs 340 crores, including the Rs 140 crores of our normal 'rolling' programme of replacements and improvements, naturally presented a problem, for, in our severely price-controlled industry, self-generated funds available for ploughing back are barely sufficient to pay for normal replacements of plant and machinery and cannot cope with large projects such as contained in our Modernisation Programme. About Rs 160 crores of rupee finance are estimated to be available from our own resources and from borrowings previously arranged with the financial institutions and Rs 55 crores ($70 million) from the foreign exchange loans and export credits mentioned in the Directors' Report. We were thus left with a rupee gap to fill of about Rs 125 crores.

16. The Steel Development Fund, created by Government in 1978, into which were to be deposited by the main producers the increases in selling prices of steel totalling Rs 400 per tonne announced in 1978 and 1979, was the obvious source for us to turn to, for it was created for the express purpose of financing modernisation projects of the steel industry. We, therefore, duly applied to the Fund for loans totalling Rs 125 crores. Government, however, have informed us that only Rs 100 crores can be committed for our Programme for the present. In view of the substantial provisions for contingency included in the cost estimates of every item of the Programme, apart from the Rs 20-crore overall cushion mentioned earlier, the shortfall will, hopefully, be less than Rs 25 crores and we still believe that such gap as remains will be met in due course from the Fund. Should this, however, not be forthcoming, I have no doubt that adequate alternative sources will be found.

17. In the meantime, Government decided last year that the Fund would be used also for payments to the main producers to compensate them for cost escalations. If Government intend that the Fund should continue on a long-term basis to serve both these purposes, it seems clear that accretions to it will have to be increased beyond the existing Rs 400 per tonne.

DIVIDENDS

18. The 12% limitation on our dividends for three years imposed by Government in 1978 when the main producers were allowed a price increase of about Rs 175 per tonne was particularly harsh to a company such as ours the shareholders of which have, for many years, been deprived of a rate of return enjoyed by the shareholders of other large companies. It became all the more burdensome as inflation set in and interest rates in the country rose to the levels we see today, for shareholders suffered not only a diminution of their income in real terms, but also of the market value of their investment which remained unduly depressed.

19. On the approaching closure of our annual accounts, we, therefore, wrote to Government urging them to withdraw this restriction and to permit a higher dividend within the limits imposed by the financial institutions and followed it up with personal discussions with Government. As Government's decision was not received by the time the Directors met to approve the year's accounts, the Board's decision, after full consideration, to recommend a dividend of 13% was made subject to Government's approval.

THE BUDGET – ITS BURDEN

20. The 1980-81 Budget presented to Parliament combined with the Railway Budget will increase our costs by an estimated Rs 11 crores per year or approximately Rs 73 per tonne of saleable steel. One statement of special interest to us in the Finance Minister's Budget Speech was that the convertibility clause attached to term loans by financial institutions to private sector companies will be exercised only to the extent that their total holding does not exceed 40% of a company's equity share capital. While this change is welcome in its intent, it does not in my view go far enough in that there is no bar on the institutions acquiring additional shares in the market, nor does it reduce the voting power that nationalised banks can exercise by voting the shares belonging to individual shareholders or companies transferred to them as security against loans. We must, however, be grateful to Government for having at last realised the harmful effect on industrial growth of this condition attached to term loans and for reducing its inhibitory impact.

SOCIAL AUDIT

21. The novel decision we made last year to have an independent audit of the Company's social performance undertaken by a panel of eminent and highly respected persons in public life, fructified during the year and culminated in a detailed report submitted by Mr. Justice S.P. Kotval, Retired Chief Justice of the Bombay High Court, Prof. P.G. Mavalankar, Director of Harold Laski Institute of Political Science, Ahmedabad and ex-Member of Parliament, and Prof. Rajni Kothari, Director of the Centre for the Study of Developing Societies, Delhi, who had responded to our invitation to undertake the task. A summary appears in this Annual Report, but printed copies of the full text in English or Hindi will be sent to any shareholder who applies for it. We are grateful to Mr. Justice Kotval, Prof. Mavalankar and Prof. Kothari for the great amount of thought, time and energy they have devoted to the task entrusted to them.

THE FOUNDER'S VISION

22. The need for such social audit arose in other countries as in India from the hostile criticism often levelled at the corporate sector. It is a fact that from the beginnings of industrialisation in the West and until well into the twentieth century, private industry was concerned mainly with making a profit and rarely with the welfare or safety of employees, consumers, or society generally. Jamsetji Tata was a shining and solitary exception, made all the more remarkable by the fact that he lived in the nineteenth century. From the very beginning of his venturing into industry he was conscious of the obligations of an entrepreneur to other than his own or his shareholders' interests. His and his sons' acceptance of corporate responsibility for the welfare of employees and their families was uniquely displayed by the adoption of an 8-hour day, annual leave with pay, retirement benefits and welfare services and also to the people living in the neighbourhood at a time when these benefits were unknown even in the U.K. and other developed countries. In keeping with his teachings and the traditions he established, your Company's record in the discharge of its social obligations has been a praiseworthy one. We, however, felt that the time had come for our performance to be independently assessed.

23. I am sure that our shareholders will be gratified to know that the Kotval Committee has indeed found much to commend in our record. While they have generously praised us for our efforts and our actions in this field, they have also rightly drawn attention to some weaknesses, in particular in regard to air pollution. Air pollution is unavoidable in some parts of an old steel plant such as ours, where the cost of eliminating the discharge of dust, coal and other particles and gases in the atmosphere would be astronomical and impracticable without virtual rebuilding of the plant.

PROBLEM OF POLLUTION

24. One of the main sources of such air pollution at Jamshedpur lies in the Steel Melting Shops. I am glad to inform shareholders that the new Shop we shall build as part of our Modernisation Programme in replacement of the old Steel Melting Shop No. 2 will include, at a cost of some Rs 10 crores, all modern design features and devices to make it virtually free from the discharge of any objectionable matter or gas into the air. We shall, in keeping with the Committee's recommendations, maintain a continuing study and assessment of our social performance and its cost-benefit ratio.

A UNIQUE ACHIEVEMENT

25. I have kept for the end of my Statement a reference to the happy event we celebrated in October 1979 on completion of fifty years of industrial harmony between the Management and the Tata Workers' Union representing the employees at Jamshedpur. This was indeed a unique occasion, for, all over the world including our own country, perhaps the most intractable problem and the one which has caused the greatest loss of production for the country, wages for the workers and profit for the shareholders, has been to find a way for management and labour to work together in peace and mutual confidence. Instead, labour disputes, strikes, lock outs and idle factories have borne witness to the break-down of human relations. Only in rare cases do we hear of management and workers and their unions getting together in a spirit of cooperation and harmony. I do not know of any place where this has been achieved with such success and for so long as in Jamshedpur. While we have reason to be proud of our achievement, we cannot afford to be complacent for we know that human relations are volatile and vulnerable to changes in the social, political and industrial environment. Apart from reasonableness on both sides, our success has been largely due to a system of continuous dialogue we have established at various levels. As the skills, experience and competence of Indian workers grow, as those of management, cooperation and participation between the two must also increase. This is a recognised aim of our Management, our workers and their unions, and we may count on them to continue to improve step by step the process of consultation and cooperation established over the years.

26. Our commendable performance during the year was mainly due to the skills and dedication of our management and employees who deserve our warm appreciation and gratitude. We may count on them to face with the same determination and ingenuity the difficulties and obstacles to production which are today as onerous as ever. Fortunately, however, they may now look forward with some confidence and relief to the exciting prospect of better days to come, when the completion of our colliery development makes us self-sufficient in coking coal, the expansion of our power generating capacity eases our power situation, and when under our Modernisation Programme, half of our steel production comes from new and wholly modern facilities.

Chairman's Statement for the year 1980-81

Bombay, 3rd July, 1981

Having, for the past forty-three years, inflicted on you Chairman's Statements and speeches in most of which I bewailed the obstacles to progress and growth placed in the path of the Company by Government policies, or other factors beyond our control, it is a particular pleasure for me to be able to address you this time on a more cheerful and optimistic note.

LONG-AWAITED CHANGE

2. This new optimism is warranted not so much by the improvement in the results of the past year's operations as by the significant change in the Government's steel pricing policies which culminated on the 24th of February 1981, when the Government lifted control over the prices of billets and bars, which had been in force uninterruptedly since 1941.

3. For the past thirty-five years or so, we have protested and argued against the unfair and unsound industrial price policies of successive Governments, which compelled the Indian steel industry, one of the most vital to the country's economy, to sell its products year after year at ex-works prices equivalent to half the domestic prices prevailing in other steel producing countries. The industry was thereby denied the financial resources that would have enabled it to keep pace with technological advances made elsewhere through a continuous replacement of obsolete equipment and processes.

4. My pleas for a more rational price policy fell on deaf ears or were met with the extraordinary argument that as the steel industry had, between 1923 and 1939, received subsidies and benefited from protective duties at the expense of the consumer, it was only right that it should repay the consumer by supplying cheap steel to the country. No account was taken of the fact that whereas the total cost to the country of the subsidies paid to TISCO and of the higher prices resulting from the protective duties charged on imports during those sixteen years was only Rs. 11 crores, over the succeeding forty years, our Company alone was deprived of legitimate earnings after tax of something of the order of Rs. 1,300 crores which, taking into account the depreciating value of the rupee, would amount to about Rs. 3,400 crores today. Even if we had paid generous dividends from the extra earnings, Tata Steel's capacity would have been at least twice what it is today, and the Company would be producing annually an additional 2 million tonnes, saving the country some Rs. 600 crores a year in precious foreign exchange.

5. While we may deplore the thirty-five years it took for the authorities to face up to the economic realities of the steel industry, which they still decline to do in respect of other industries such as cement, we must congratulate the present Government, and particularly its Minister for Steel, on their courageous decision to decontrol billets, bars and rods. By so doing, they have not only relieved the public sector plants and ours from the unfair compulsion not imposed on other steel producers of having to sell these products at uneconomically low prices, but they have done so at little or no cost to the ultimate consumer, for the benefit of the lower selling prices accrued largely to the trade. As, at the same time, presumably, a good part of the profit made by the trade escaped tax upto now, deregulation will also benefit the Treasury and therefore the tax-payer and consumer.

UNIFORM PRICES ESSENTIAL

6. The method by which from April 1979 the Government compensated the main producers for increases in costs of controlled categories of steel by payments from the Steel Development Fund (SDF) based on each plant's own cost escalations caused us much concern, for it infringed the principle of price uniformity within the industry which had been accepted without interruption for decades. Such a system is unfair to those who, at considerable expense of money, effort and ingenuity, manage to keep their cost increases to the minimum, while it removes all incentive for further effort in that most desirable direction.

7. We have, therefore, urged the Government, and are continuing to do so, to maintain the principle of uniformity and with that intent to make any scheme of compensation for cost escalations in price-controlled products uniform for all the main producers. Deregulation provides the best and most effective means of rewarding efficiency and penalising inefficiency and should be extended to all categories of steel as soon as possible. In both the public and private sectors of the integrated steel industry, Government have ample means to prevent any profiteering. The acute depression prevailing throughout the world steel industry and the resultant relative low prices at which steel can be imported provides by itself an effective limitation on the prices which the Indian producers can charge.

STEEL DEVELOPMENT FUND

8. At the date of this report, the situation in regard to the Steel Development Fund is still not clear. As shareholders are aware, the Government had announced on the 9th of February this year, an increase of 20% in the prices of all price-controlled categories of steel to be paid in toto into the Fund. However, subsequent to the decontrol of billets, bars and rods on 24th February, the Government decided in June 1981 that the scheme of contributions to the Fund as per the February announcement would apply only upto 31st March. Notwithstanding unconfirmed Press reports, decisions whether the SDF is henceforth to be used exclusively for financing modernisation or also for the payment of compensation for cost increases, and as to the amount of contributions to the Fund and the categories on which they are to be made from 1st April 1981, are still to be announced.

9. I hope that in formulating the final scheme of things, the SDF will be reserved exclusively for financing modernisation and consequential minor expansion, and not for meeting cost escalations. In regard to the latter, so far as decontrolled categories of steel are concerned, the producers should normally look to market forces and their own efficiency and cost competitiveness. If the Government were at any time satisfied that imports of steel were taking place at uneconomically low prices amounting to dumping, they should, as in the past, resort temporarily to protective import duties. In the case of those categories of steel which continue to be price controlled in the public interest, the Government should increase such controlled prices from time to time to meet legitimate and unavoidable increases in costs. Such increases should be approved after only summary investigations of costs to avoid the long delays, costly to the producers, which invariably took place in the past.

10. An issue of particular importance to the integrated plants, including ours, concerns the terms on which loans are to be made from the SDF against approved modernisation programmes. We have represented to the Government that, as the accretions to the Fund will come from the amounts collected by the main producers, they should be lent back to them at a concessional rate of interest and not as announced at the rate charged by the financial institutions for commercial loans. As the Company's argument has not been accepted upto now, a further representation has been made urging reconsideration on the additional grounds, amongst others, that the funds to be lent will have cost the Government nothing to raise and that the higher rate of interest will increase the cost of modernisation, by about 15% even after allowing for tax relief.

11. We have also urged that even though it may not be specially laid down in the SDF scheme, the amount loaned to each plant over the years should in practice bear a reasonable relation to the amount it had contributed to the Fund. Finally, we have also asked that the integrated steel producers should be represented on the Committee administering the Fund or, if that is not possible, that at least the views of the main producers should be taken into account in its administration and in the grant of loans.

CONTINUOUS INVESTMENT PROGRAMME

12. If I have dealt with at such length on the manner in which, and the authority by whom, the SDF is to be operated, it is because, apart from the Rs. 100 crores already committed to us to finance a part of our Modernisation Programme, we expect to make substantial further calls on the SDF in the future, for we have no intention to rest on our oars after the completion of the first phase of the major programme of modernisation. This will necessarily be followed by a second phase in a process which must be a continuous one for at least the rest of the decade. In addition, with our financial position strengthened by the increased profitability of our operations, we intend to undertake such programmes of diversification and development as are justified by our technical and material resources. The continued growth of a company such as ours need not come merely from an expansion of capacity and production of existing products. We shall seek every avenue open to us to make the Company grow in its total annual turnover, to the extent allowed to us by the Government and economic conditions. You may be sure that our intention will be to consider only projects which will give us a significant return, including that obtained from increased efficiency and productivity.

BONUS SHARES AND CONVERTIBLE BONDS ...

13. I was glad to note from Press reports and market reaction that the Board's decisions in respect of dividends and the issue of Bonus Shares and Convertible Bonds have met with universal approval and appreciation, for over the years, shareholders have been inclined to accuse me and my colleagues of being excessively cautious in the matter of dividends and Bonus Shares, and thus to be unresponsive to their interests. Those who held such a view were perhaps unmindful of the severe limitations on our freedom to decide in these matters imposed on us by the Government, financial institutions, the Companies Act and restrictive guidelines. To the extent that we were free to exercise our judgement, I believe that the decisions we took over the years provided the best possible compromise between the conflicting factors we had to take into account, including our anxiety to be fair to the shareholders while maintaining unimpaired the financial security of the Company.

...ON GENEROUS TERMS

14. As soon as a favourable change took place in the earnings of the steel industry and in its prospects, there was no hesitation or delay on our part to formulate and announce the generous proposals before you in respect of dividends, Bonus Shares and Convertible Bonds. In fact, because the benefits of the Bonus Shares will accrue to the shareholders only next year when the Company will celebrate its platinum jubilee, and similar action obviously cannot be repeated for two or three years, the Directors went out of their way to make the bonus element in both schemes as large as possible in the existing circumstances. Not only was the Bonus Share issue fixed at a high 2:5 ratio, but the Convertible Bonds were specially structured to maximise benefits to the shareholders, particularly to small shareholders. In the light of these decisions, I hope that the myth that your Directors are unsympathetic to the shareholders' interests will once and for all be laid to rest. While I am naturally happy at the spectacular rise which has recently taken place in the value of your investment, I hope that a realistic view is being taken of the Company's long-term prospects of growth and profitability.

A GREAT EFFORT

15. In conclusion, while we may rejoice at the improvement in the Company's fortunes, let us not overlook the great efforts made by the whole organisation in off-setting the severe infrastructural obstacles which the Company continued to face throughout the year. Enormous quantities of coal had again to be brought in by road to Jamshedpur because of the continued failure of the Railways to discharge their obligation to provide adequate rail transport. In regard to power, although supplies from the Government power plants did show some welcome improvement towards the end of the year, our own ageing captive power facilities had this year again to be strained to the utmost in order to keep the steel plant producing at capacity levels. Cruel power cuts were imposed on our steel city where, without a murmur or protest, our 40,000 employees and their families, and hundreds of thousands of other citizens suffered great hardships for as many as seven to ten hours per day, day after day.

16. Our workers gave further proof of their loyalty and devotion to the Company which they, rightly, treat very much as their own, by defeating a deliberate attempt on the part of certain political forces to disrupt operations and bring the plant to a standstill, while, in keeping with the unique spirit which has marked industrial relations at Jamshedpur, communal and labour harmony were maintained at a time when the State suffered widespread unrest and disorder on both these counts.

17. Thus, while the striking gains made by the Company in the year under review were substantially due to changes in the Government policy, they could not have been achieved without the sustained effort, hard work and high morale displayed by our management and employees throughout the organisation, for which we should be, and indeed are, profoundly grateful.

Chairman's Statement for the year 1981-82

Bombay, 3rd July, 1981

A LONG HAUL

AS our Company completes the 75th year of its existence, it is fitting that we should look back upon the long road – rarely a smooth one, often a rocky one – along which we have travelled these seven and-a-half decades. While the statistical statement on pages 42 and 43 presents a condensed picture of the Company's progress which does illustrate the slow pace of our growth and the long periods of stagnation we had to endure over these many turbulent years, they give little hint of the immense difficulties and obstacles we had to overcome in our long struggle to establish the steel industry of India in fulfilment of Jamsetji Tata's vision.

ENDLESS STRUGGLE

2. Barring the post-World War I period, when we were nearly put out of existence by massive dumping of steel from abroad and were saved only by the timely introduction of protective duties and a small subsidy for a brief period, the most serious impediment to progress we faced until last year was the insistence of successive governments, in disregard of economic realities, to fix the steel prices allowed to the Indian steel industry at about half those earned by steel producers in the rest of the world. We were thereby continuously deprived of the internal resources required to keep our plant efficient and modern, let alone to expand it. Were it not for the opportunity given to us by the Government of India in the early fifties to double our installed capacity, we would indeed have been hard put to survive. It is right, therefore, that we should remember with gratitude the encouragement and assistance we got from the Government of Pandit Jawaharlal Nehru and the boldness displayed by the late T.T. Krishnamachari who, as Steel Minister and later as Finance Minister, piloted the project through the Cabinet.

3. After that temporary display of economic realism, stagnation was our Company's destiny for the next 25 years while the world's steel industry, led by that of Japan, grew and prospered until disrupted, along with all industries, by the successive bouts of recession and inflation caused by the catastrophic rise in oil prices from 1973 onwards. Throughout this long and frustrating period we pleaded in vain for a change in Government's industrial policy and particularly in regard to price controls, in the interests of the public sector plants as well as our own and of the country as a whole.

4. To add to our troubles, all Indian industry began in the last decade to suffer increasingly from the multiple afflictions of inflation and shortages. Heroic efforts had to be made by our Management just to maintain production despite grievous shortages of power, coal and transport.

A BREATH OF FRESH AIR

5. Government's decision in February last year to deregulate over half of the steel output of the main producers, followed by the deregulation of all remaining categories of steel in April this year, came as a long-awaited breath of fresh air in the stifling atmosphere in which we had struggled all those years. By an interesting coincidence, it was once again the Minister in charge of steel, and then of finance, this time Mr. Pranab Mukherjee, who initiated this important change of policy and piloted it through the Government. We are grateful to the Government and to him, as I am sure the public sector of the industry must be too, for this overdue change of a policy which was mainly responsible for hampering and delaying the growth of the steel industry for so long.

6. In the year under review, the Indian economy benefited from another favourable monsoon, from improved power supply and from more helpful economic policies, including the deregulation of steel prices, liberalisation of imports and from the success of the Government's battle against inflation, which helped to instil confidence and virtually to eliminate black market premia on many products.

DISTURBING SIGNS

7. Whilst the country's economic performance was thus gratifying, disturbing signs of change have begun to appear in the current year interpreted by industry and some economists as the beginnings of a deepening recession and by Government as merely a process of adjustment between demand and improved supply with no recessionary implication. Whatever the respective soundness of these two points of view, there is no doubt that, taking advantage of the greatly liberalised import rules, such large quantities of some products including soda ash, aluminium, polyester and special steels were imported at such unfairly low prices as to create a glut in the market and compel Indian producers of the same products drastically to reduce production or even to close down their factories. It is natural that producers who can no longer sell their products or can do so only at a heavy loss should consider that, at least in their business, a state of recession prevails.

EXCESSIVE IMPORTS...

8. Liberalised imports of materials in short supply which permit fuller utilisation of installed capacity are no doubt generally beneficial to industry and consumers, but they can cause great damage if allowed to go out of control, as seems to have happened in the past year on some products, with Government failing to make a distinction between desirable imports at economic prices and excessive imports at "dumping" prices.

...AND CREDIT RESTRICTIONS

9. Apart from this cause of recessionary activity in some areas of the economy, the stringent credit restrictions imposed by the Government as its most potent weapon in combating inflation have created a genuine shortage of funds in the hands of producers and buyers of some products and capital goods. This has not only inhibited further orders being placed, but has also caused long delays in honouring bills for equipment already purchased, as a result of which producers find themselves hard put to finance growing inventories and outstanding bills. This situation is also understandably treated by industry as conducive to a recession.

10. In view of the conflicting needs of keeping inflation in check and at the same time of promoting growth, all one can suggest is that the Government should fine-tune its import, credit and fiscal policies, make them more selective than they have been upto now and so ensure that the rising tempo of investment and production, which was a gratifying feature of the economy's performance in the past year, is not allowed to run out of steam. Those industries with the maximum potential for generating tax revenues and for saving or earning foreign exchange, should be given a clear priority in the allocation of credit and other forms of support, not only for the purpose of sustaining their production and viability but also to ensure the maintenance of the tax revenues they provide to Government.

A RECORD YEAR

11. Insofar as our Company is concerned, shareholders will, I hope, have been happy with its performance at the close of the 75th year of its existence, and with the Board's decision not only to maintain last year's 15% dividend on the 40% larger equity capital, but, subject to the approval of the financial institutions and the Joint Plant Committee, to increase it by 2% as a bonus to mark the 75th anniversary of the Company which I hope will disprove the complaint of some shareholders that the Directors are stepmotherly towards their shareholders.

12. While the Company continued to operate at over a hundred per cent of its installed capacity, the record profit was mainly due to the remarkable change which took place when Government allowed, from February 1981, the main producers to charge a fair market price for billets and bars. As you know, in April this year deregulation of prices has been extended to all categories of steel.

13. One possible uncertainty in the new dispensation is that whereas, when prices of billets and bars were decontrolled last year, the main steel producers were left individually free to fix their selling prices for deregulated categories, from April this year the price fixing function has been entrusted to the Joint Plant Committee under the Chairmanship of the Iron and Steel Controller. I hope that the representatives on the J.P.C. of the integrated steel industry, five-sixths of whom are today in the public sector, will be left free to use their judgement, tempered by their sense of social responsibility, in fixing the selling prices of their products without interference from Government.

CAUSES FOR WORRY

14. Two other elements of the new policy vis-à-vis the steel industry which cause us some worry are the rate of contribution which we have to make to the Steel Development Fund and the interest to be charged to us on borrowings from the S.D.F.

15. When the Steel Development Fund was created in 1978, the objective was announced as being that of providing loan finance for the modernisation and development of the ageing steel plants. Shortly thereafter, the Government decided to extend the scope of the S.D.F. to include compensation for cost escalations beyond the producers' control. Withdrawals from the Fund on this account, however, grew so rapidly and were so heavy that, by the end of 1980, the Fund was totally exhausted. Faced with this situation, the previous S.D.F. scheme was abandoned and, with effect from April 1, 1981, the main producers' payments to the Fund were fixed at a flat rate of Rs. 700 per tonne of all saleable steel despatched minus a deduction of Rs. 100 per tonne in our case and Rs. 200 in that of the Government plants for cost escalations. As in our view the difference of Rs. 100 per tonne is no longer justified since the deregulation of prices was made applicable to all categories of steel, we have made a representation to Government to allow us the same rate of deduction. We have also urged them to reduce the basic contribution per tonne to the Fund which we consider much in excess of the needs of the existing plants.

16. In regard to the rate of interest on loans advanced to the steel plants from the S.D.F., we have urged that, considering it is the steel producers themselves who provide the funds from their gross revenues at no cost whatsoever to Government, and in order not to inflate the cost of modernisation, the rate of interest charged on S.D.F. loans, should be substantially less than that charged by the financial institutions on term loans which Government has upto now decided should apply to loans from the Steel Development Fund.

CURRENT COST ACCOUNTING

17. Considerable discussion has taken place in recent years in India and in other countries on the need to revise the presentation of corporate accounting so as to assess the impact of inflation on capital costs as well as on operating costs and, for that purpose, to frame them on what has come to be known as the Current Cost Accounting basis instead of the Historical Cost basis. In fact, in the U.S.A. it is mandatory for corporate management to include in their report a statement of the financial position of the company based on current cost accounts.

18. In an inflationary era such as ours, in which the replacement cost of capital equipment keeps steadily escalating, corporate accounts based on historical costs suffer from the main drawback that, because the annual provisions made for depreciation during the life of an asset and allowed for tax purposes are grossly inadequate to finance its replacement, illusorily high profits are presented each year on which the company is then heavily taxed. Furthermore, the inadequacy of funds available for replacement tends to compel companies to operate obsolete equipment for too long, depriving them, in the process, of the greater efficiency and lower costs which more modern equipment would have provided.

19. A further important drawback is that management is deprived of the true picture of the company's real worth and profitability on which to plan its current and future operations. This unsatisfactory situation is corrected under Current Cost Accounting practice by a continuous revaluation of assets in the annual accounts to correspond with current costs.

20. Although a change-over to Current Cost Accounting could be adopted in practice only if Government approved of it for tax and other purposes, of which there is no sign today, we have had a quick expert valuation made of our plant and machinery and notionally revised the main items of the year's accounts as they would appear if kept under the Current Cost Accounting basis. The following picture emerged:

The Gross Block would be:

Rs. 1,954 crores instead of Rs. 650 crores

The Net Block:

Rs. 1,051 crores instead of Rs. 304 crores

The provision for depreciation:

Rs. 101 crores instead of Rs. 27 crores

The profit subject to tax (after necessary consequential adjustments):

Rs. 7 crores instead of Rs. 78 crores

21. Such a situation would obviously be unacceptable if all other financial parameters remained unchanged. If, however, the Current Cost Accounting system were in vogue in India resulting in a marked decrease in tax and a corresponding increase in the Company's cash flow, there would be no case for continuing the investment allowance scheme or its predecessor, the development rebate scheme or, for that matter, the SDF scheme itself. Assuming that no contribution to the Fund was required, the year's profit before tax in the above notional example would be increased by Rs. 90 crores. Alternatively, the S.D.F. scheme might continue, but on a substantially reduced scale to provide additional loan funds for modernisation and expansion.

22. As there is no prospect in the near future of any such fundamental change in Indian corporate and fiscal laws governing the presentation of company accounts, there is no proposal before your Company to present the annual balance sheet and profit and loss account on a Current Cost Accounting basis. This part of my Statement has been included merely to provide shareholders, management and Government with a more realistic understanding of the unfair and adverse consequences of levying income tax on industry on illusory profits calculated on historical costs and to underline the need for a change in the corporate laws and fiscal policies of Government.

A TRIBUTE

23. Year after year, I have concluded my Statement by paying tribute to the unique spirit in which more than 60,000 employees of the organisation confront and overcome enormous problems and difficulties. Once again they have performed magnificently in presenting us with impressive records in production and sales, in profits, and in the conservation of energy, and I am sure shareholders will wish to join me in expressing our deep appreciation and thanks to the Management and employees at all levels for making this 75th year such a landmark in the long history of the Company. It is apt to recall, at this time, the memorable words of our then Vice-Chairman, Mr. J.D. Choksi, on the occasion of the Diamond Jubilee of the Company fifteen years ago:

"There are certain corporations the world round, which stand out from their fellows. They need not be the largest or the most prosperous in their country or even in their given field but their achievements and traditions are epochal and in peoples' minds identify the trade or industry to which they belong with themselves ... The Tata Iron and Steel Company is such a corporation."

Chairman's Statement for the year 1982-83

Bombay, 8th July, 1983

GROWING YOUNGER AND STRONGER

The past year has been an eventful and, on the whole, a satisfactory one for our Company as well as for the Indian economy. The latter showed an admirable resilience in the face of many adverse circumstances and natural calamities, and managed to contain inflation at a low level despite a negative growth rate in agriculture and a sharp fall in that of industry. Disturbing signs are, however, emerging in the resumption of an upward trend in prices, and in precarious prospects in the balance of payments situation. In the long term, only a continuous and steady growth of industrial and agricultural production, stimulated by positive as well as stable Government policies can ensure the country's economic revival. Industrial growth cannot be achieved without full supplies, at reasonable prices, of basic infrastructural inputs, mainly power, coal and rail transport. Deficiency in these has proved to be the main obstacle to sustained industrial growth in our country.

GRIEVOUS BURDEN

2. The most serious deficiency has been in the power field, dramatically reflected in the power cuts which every year, in one part of the country or another, at times in all of them, have caused tremendous annual loss of output, currently estimated at over ten thousand crores of rupees. Apart from its grievous impact on production, the low rate of utilisation of installed capacity results not only in infructuous expenditure by Central and State Governments but also in avoidable investment by power consuming industries which are being increasingly compelled to provide captive power, mostly at exorbitant cost, in order to maintain production.

3. The power generating and distributing industry, in a country like ours, is undoubtedly faced with special problems and difficulties, burdened as it is with the need to supply power over great distances to small consuming centres, with the poor quality of Indian coal, and with the uncertainties of water supply for hydro power caused by the vagaries of the monsoon. At the same time, it is a known fact that much of the shortage of power and resultant power cuts is largely due to an inadequate utilisation of generating capacity, itself largely due to low standards of maintenance and operation. I would, therefore, urge Government and Public Sector enterprises to give top priority during the next few years to such projects and measures as will ensure to industry in both Public and Private Sectors full supply of their infrastructural needs.

EXCELLENT PERFORMANCE

4. Coming to our own affairs, our performance during the past year should be considered very satisfactory even though our operating profits were substantially reduced by the increased burden of interest which we must inevitably bear for some years on the financing of our modernisation programme. The Company not only maintained full production, despite the difficulties caused by the heavy construction work in progress in the middle of the plant, even breaking some departmental records in the process, but completed on time and commissioned the new Steel Melting Shop, the first and most important part of our modernisation programme. This timely execution is largely due to the high skills and capabilities of the Engineering Division, which will be called upon to play an increasingly important role in further phases of modernisation. This Shop replaces one constructed in 1923, the continued operation of which could be achieved only by such a degree of maintenance and constant repairs to old equipment as is virtually unknown in our country and, most of all, by the dedicated work of all concerned at Jamshedpur.

LOST OPPORTUNITY

5. To one like myself who, in the 1920s, personally witnessed with pride and excitement the establishment of what was then a wholly modern unit, and then, sadly, saw it age and grow progressively more obsolete as it bravely maintained output at heavy cost well beyond its economic life, this long-awaited opportunity to give it its well earned rest and to rejuvenate the plant with a young and healthy unit has been particularly gratifying. At the same time, I cannot but bemoan the loss of the over Rs. 2,000 crores or so of which we were deprived over the past 35 years through Government's unfortunate policy of starving the steel industry, including its own units, of the means of enabling it to remain modern and competitive. Even after paying taxes on the additional profits we would have made over these four decades, we could have financed a programme of continuous modernisation at much lower cost than today, and the funds now made available by price decontrol could, instead, have been used for more profitable expansion and diversification.

THE YEAR'S PROSPECTS

6. Although the new Steel Melting Shop was commissioned at the end of March 1983, it will naturally take some months to get into full operation. While, therefore, such increase in output and income as can be obtained during the current year will be relatively small, the Company will bear a substantial additional burden, estimated at about Rs. 65 crores, in depreciation, interest, wages and cost escalations mostly beyond its control.

7. These adverse factors will be partly compensated by the increase in steel prices announced in October 1982 which will apply for a full year, by cost reductions arising from the completion of the West Bokaro colliery development project, and from the operation of the new Steel Melting Shop. Further potentially favourable factors would hopefully lie in increased sales income and in a reduction in the Steel Development Fund levy for which we and the other main steel producers have applied to the Government. A reduction in the levy of a couple of hundred rupees per tonne would by itself save us about Rs. 30 crores.

8. The ultimate results will depend on the extent of increases in costs beyond the Management's control, such as in the prices of purchased coal, of power and of rail transport, and of other elements, the costs of which are directly or indirectly controlled by Government. In the past year alone, while savings of about Rs. 55 per tonne were obtained from our continuous cost saving programme, increases, mainly from the above sources, cost the Company about Rs. 200 per tonne of saleable steel.

MODERNISATION: COST AND BENEFITS

9. As shareholders are aware, the newly installed Steel Melting Shop and its ancillaries are only part of Phase I of our modernisation programme. As stated in the Directors' Report, Phase II of the programme, of which a beginning will be made in the current year, will, apart from modernisation, raise the saleable steel capacity of the plant to 2.1 million tonnes, or about half a million tonnes more than it has been in the past two decades. While the final capital cost of Phase II is still to be determined, it may be of the order of Rs. 300 crores, which would bring the total expenditure on the programme to over Rs. 500 crores, excluding the Rs. 50 crores we have already spent on the development of the West Bokaro colliery, and about Rs. 75 crores we shall have to incur on power generation.

10. An expenditure of some Rs. 500 crores on a programme of modernisation, which will add only half a million tonnes a year of saleable steel, may seem high compared to the Rs. 120 crores we spent on the expansion project undertaken in the Fifties which added 750,000 tonnes to our saleable steel capacity. It must be realised, however, that the present two phases of modernisation will actually create new steelmaking capacity of 1.1 million tonnes of liquid steel (equivalent to about 900,000 tonnes of saleable steel) of which over half is in replacement of capacity which can no longer be kept alive. Even including the investment on modernisation and relating the total investment to the additional steel capacity, the capital cost, at Rs. 10,000 per tonne, would be substantially lower than the current estimate of Rs. 15,000 to Rs. 20,000 per tonne for a new integrated 'green-field' capacity.

LOOKING AHEAD

11. In assessing the long-term prospects and needs of the Company, we should keep in mind the fact that the present programme, when completed, will have modernised only the oldest half of our plant and that, sooner or later, those units which were added about 25 years ago will, in turn, reach the end of their economic life and will also need to be replaced by more modern equipment and processes. Our long-term aim should be to maximise the value we add to our products so as to earn the highest return on our investment. The stakes involved in such a long-term programme will be high and the financial requirements substantial, but we shall have important compensatory advantages on our side, such as an excellent infrastructure, self-sufficiency in our main raw materials and, to a large extent, in electric power. Our greatest source of strength, however, if we can maintain it at its present level, will lie in our outstandingly good relationship with our workers which will ensure that we continue to obtain the best results from our productive assets, with the only qualification that we gradually increase the productivity of our labour force, the wages of which have been rising much faster than their productivity.

OUR GREATEST STRENGTH

12. I have earlier referred to the crucial role played by our workers, staff and Management under the continuing dynamic leadership of Mr. Russi Mody in maintaining full production year after year, despite the age and obsolescence of our plant. Our marketing organisation, which succeeded in selling an appreciably larger quantity than in the previous year in spite of an extremely weak market, also deserves to be commended. As I have so often said before, the real strength of a company lies not so much in the size and productivity of its assets as in the competence, enthusiasm and dedication of its organisation. Our Company's history provides striking evidence of the truth of that statement and it is on the strength of it that I look ahead with the greatest confidence to its continued growth and prosperity along with that of its shareholders and employees.

Chairman's Statement for the year 1983-84

Bombay, 6th July, 1984

A MIXED PERFORMANCE

The performance of the Indian economy in the past year was a mixed one in which some conspicuous gains were achieved, but still in the shadow of dark clouds which continued to impede progress. Prompted by a good monsoon, it achieved a remarkable real growth rate of about 7% as against a mere 1.8% during the previous year. Widespread recessionary trends which affected Indian industry in 1982-83 had also subsided in large measure. The favourable investment climate was reflected in the fact that the private sector could raise capital at an all-time high figure of about Rs. 1,000 crores in a single year. Until a few years ago, the trend was at a low of about Rs. 150 crore annually. The revival of investor interest in non-convertible debentures floated by reputed companies like ours is another good indicator of this improved climate. Finally, developments in India's oil sector have been most encouraging: our dependence on imports is rapidly declining, and the oil companies' operations are highly profitable.

2. On the external front also, seen in contrast to the trends all over the world, the Indian economy has not fared badly. Our trade deficit which was menacingly doubling every year for several years, has now stabilised at around Rs. 5,500 crores. Our foreign exchange reserves have improved and are now at a reasonable level, being equivalent to about 4 months' imports. The debt-service ratio at about 11%, though high as compared to the previous years, is well below the average of 21% of the other non-OPEC developing countries.

THE VITAL TASK

3. On the dark side, inflation returned with a vengeance, once more barely missing double digits; the parallel economy continued to flourish, and in fact to grow, spreading its tentacles further afield; the basic problems of mass poverty and mass unemployment remain unsolved although their solution is well within India's own ingenuity. But the darkest cloud of all is the threat to our national unity caused by the emergence of religious and communal fanaticism which in various parts of the country have set people against each other and led to the tragic events of recent months in Punjab and Maharashtra. Of all the tasks before us today, none is more vital and more urgent than the revival of our faith in the unity of the nation and in our determination to achieve it, for, without unity of thought and heart, and without united endeavour, not only will we falter in our progress towards a better life for all our people, but we shall also betray our ancient civilisation and forfeit the moral and spiritual influence it gave us vis-à-vis the rest of the world.

A SET-BACK: THE REASONS

4. Turning to our own affairs, I expect that in the light of the sharp set-back in the Company's profits in the past year, followed by the substantial rise in prices from 22nd June, shareholders will wish to know how the Company is likely to fare in the immediate future.

5. While the welcome and timely news of the increase in prices will have mitigated your disappointment at the sharp drop in profit for the year under review, I think it is important that shareholders should not only understand what has happened in the past year, but should also be fully informed of the background of the last few years against which they can realistically assess the present state and future prospects of the Company.

6. Let me first point out that in comparing the profits of these last two years, Rs. 10 crores out of the provision of Rs. 43 crores for depreciation were accounted for not by a corresponding increase in capital expenditure during the year but by the upward revision in rates of depreciation introduced last year under the Income-tax Rules which have increased the rate at which we have to depreciate our assets from an average of 6.8% to 10.6%. The extra debit to the Profit and Loss Account will be recouped in due course when, on the resulting earlier write-off of the assets, provisions for depredation will be correspondingly reduced and tax relief obtained in the form of interest saved on delayed tax payments. In a direct comparison of the working results of the two years, the reduction in profit was therefore Rs. 15 crores and not Rs. 25 crores.

7. Even after allowing for this exceptional transfer of Rs. 10 crores from profit to depreciation, the fall in profit may have puzzled those amongst you who expected continuing high profits from the withdrawal of price controls in 1980-81, and from the subsequent modernisation of the plant.

8. Our gross revenues from steel sales did indeed increase very materially from Rs. 399 crores earned in the last year prior to decontrol to nearly Rs. 743 crores in 1983-84, thanks partly to a rise in production but mainly to increased prices. However, as we are all aware, Government decided, on decontrol, to divert from the resulting increase in the revenues of the producers, large annual contributions to a Steel Development Fund, which in our case have amounted upto 31st March this year to as much as Rs. 324 crores against which we received a reimbursement of cost escalations of Rs. 39 crores and took a loan from the Fund of only Rs. 100 crores.

9. The net realisation per tonne, after deducting various Government levies, increased by about Rs. 1550 during the last four years. Unfortunately, however, over the same period, costs gradually rose by about Rs. 1300 per tonne most of which were due to increases in the cost of rail transport, purchased coal, power, wages and other elements beyond the control of management. These were the main factors which caused our profits (subject to interest and depreciation) to rise from Rs. 54 crores in 1979-80 to Rs. 119 crores in 1981-82 and to stabilise at around Rs. 108 crores during the past two years.

WAGES AND PRODUCTIVITY

10. If I have included increases in wages in the list of factors of cost increases beyond our control, it is because wage rates in the steel industry are fixed from time to time by tripartite negotiations between Government, the producers and the Unions. As our operations represent only about one-fifth of the total of the main producers, we have had no option but to fall in with the settlements imposed by the majority. Unfortunately, the increases allowed in the last settlement for the four-year period September 1982 to August 1986 inclusive, combined with indirect benefits given by the individual plants, were not only inordinately high, but took no account of labour productivity. The average earnings per employee at Jamshedpur today are close to Rs. 25,000 per annum.

11. While it is gratifying to know that our employees are amongst the highest paid in India, It is clear that no company, even one as financially strong as Tata Steel, can afford to bear continuing increases in wage costs of this magnitude unaccompanied by a sizeable increase in productivity, and at the same time to make large investments in new plant and equipment.

12. It was perhaps inevitable that in our plant, established many decades ago, operating the labour-intensive processes and equipment prevailing at the time, the number of men employed over the years has far exceeded the number required today for the same output. While over-manning was tolerated so long as wage costs per tonne were correspondingly low, this is no longer the case at Jamshedpur where, as a percentage of total costs, they are now higher than in Japan and developing countries like South Korea. The time has now come when an increase in productivity is an imperative necessity for the continued viability of our Company, and in fact for its ultimate survival.

THE BEST SOLUTION

13. As there is no possibility, in the foreseeable future, of a massive increase in steel production at Jamshedpur of the kind achieved in the 'fifties, when the Plant's capacity and labour productivity were both doubled and as retrenchment must be avoided because of the hardships it would cause, the only practical solution which could fulfil the objective in view and at the same time safeguard the employees' interests, would lie in a voluntary scheme of premature retirement. The benefits of such a scheme would have to be sufficiently attractive to the employees concerned as to give them in addition to existing retirement benefits, opportunities to continue to earn a decent living either in the form of alternative employment or self-employment. At the same time, the scheme must be financially viable from the Company's point of view.

14. Employment in the Steel Company at Jamshedpur has over the decades become so deep-rooted a part of the lives of generations of workers, many of whom along with their fathers were born at Jamshedpur in the Company's hospitals, educated in the Company's schools, housed in Company quarters, employed in the Company's Plant or Town, and enjoyed all the services provided by an attractive and well administered Town, that it acts as a formidable disincentive to considering employment and life elsewhere. Nevertheless, a solution to this intractable problem will have to be found, and soon. I am sure that as in the years past in so many difficult issues, the robust joint negotiating machinery, so unique to Tata Steel, will find a way out of this impasse.

15. It will be seen from these facts, figures and trends that the two main causes of the substantial reduction in our profit since price deregulation were, on the one hand, rising costs beyond our control, and, on the other, the heavy additional burden of interest and depreciation, most of which, with the exception of last year's increase in the rate of depreciation, was due to capital expenditure on the modernisation programme, the full benefits of which are still to come.

THE PROSPECTS

16. So much for the past. How is the Company likely to fare from now on? The immediate prospects have clearly been changed for the better by the recent increases in steel prices, which should add about Rs. 59 crores to our revenue this year. This, after allowing for the further increases in manufacturing costs, which have already occurred and may be expected during the rest of the year and in depreciation and interest, should result in an improvement in the current year's profit.

17. Even with this latest increase, the prices we and the other main producers realise ex-factory, are still generally lower than the domestic prices prevailing in the leading steel producing countries of the world, but the Indian consumer will now pay appreciably more because of the excessive levies imposed on steel by our Government in the form of excise duties, contributions to the SDF and for freight equalisation, the aggregate of which represented last year nearly 30% of our average selling prices.

18. Can demand continue to grow despite the high and growing cost of steel to the consumer? We must, I think, assume that it will do so along with the growth of our national economy, and that the net prices allowed to us, producers, will also rise, though with some delay, to cover at least rises in costs beyond our control. You may be assured that every effort will continue to be made at Jamshedpur to absorb such increases to the maximum possible extent through increased efficiency, including that provided by the first phase of the Modernisation Programme. This brings me to the second question raised by some whether expenditure should be incurred on the second phase before reaping the fruits of the first.

19. To begin with, the fact is that had we not built the new LD Shop, the major item in the first phase of the Programme, and had we not spent some Rs. 50 crores in virtually quadrupling the coal raising capacity of our West Bokaro collieries, we would be in serious trouble today and facing heavy losses in a year or two due, to the gradual decline in production of the 60-year old Steel Melting Shop and its ultimate shutdown, and to crippling increases in coal costs. With the new LD Shop now fully operational, and with assured supplies of coal of lower ash content and much lower cost than could be purchased, we are in a position to achieve the planned output of 1.7 million tonnes of saleable steel.

20. Phase II of the Programme is mainly intended to modernise and expand the capacity of our old finishing mills, a need which had to be neglected in the past owing to lack of funds. The additional facilities which will be set up for rolling new categories of bars and rods, will reduce to some extent the inordinately high proportion of our steel which we have to sell today in semi-finished form, losing in the process substantial value-added revenue every year. This programme is therefore a necessary and profitable one.

21. We must also face the need for another major investment on the further development of our collieries, this time in the Jharia fields, in order to ensure maximum production from our blast furnaces. The total investment spread over five years including our normal rolling programme of replacements and improvements would be of the order of Rs. 450 crores, to be financed mainly from retained earnings and from Steel Development Fund loans at a maximum interest rate of 8%.

REJUVENATION, PRODUCTIVITY AND DIVERSIFICATION

22. Despite the set-back in our profits last year, and the uncertainties and constraints under which all industry operates in India, our Company is today stronger than it has been for many years and our prospects remain bright, provided we continue to be the most efficient steel producer in the country. We did well in our operations last year and, to the credit of our Marketing Division, we sold all the steel we made for sale, a difficult task during a recession in demand. We must, however, face the fact that in these four years, and for the matter of that, in the previous 15 years or so, our production has remained more or less stagnant. In the absence of a substantial growth of production which we cannot foresee for the present, increased profitability can only come from the continued rejuvenation of our physical assets, raising their productivity and that of our labour force, adding value to our products and diversifying our activities wherever possible and profitable. In pursuance of the latter objective, we have acquired, through our investment subsidiary, a majority shareholding in Special Steels Limited and, subject to Government's approval, we have arranged to purchase the Bearings Division of Metal Box India Limited at Kharagpur, and also to invest in Kumardhubi Metal Castings and Engineering Company Limited, a joint sector company in Bihar.

23. In our continued pursuit of excellence and profitability, we are fortunate in having such a highly competent, devoted and superbly led organisation on which we can safely rely. We are grateful to our supervisors, workers and their Unions for their continued support in all our endeavours.

