Ratan Tata, the 71-year-old chairman of Tata Group, India's largest conglomerate and owner of Jaguar Land Rover and Corus, is pinned against the back wall of the Crystal Room in Mumbai's Taj Mahal Palace & Tower hotel (also owned by Tata) as a swarm of photographers and reporters encircles him. Here for a book launch, Tata shyly responds to a question before being pulled from the melee by two beefy aides and hustled outside into the sweltering pre-monsoon heat. Being mobbed like you're Madonna is nothing unusual for the quiet bachelor who has become for many of his compatriots the embodiment of what New India can achieve.
It's 36 degsC with 85% humidity - and nearly six months to the day that the hotel was besieged by Pakistani terrorists. Emotions still run high among the Taj's employees - 11 of whom were killed - but the megacity's 13.7 million inhabitants are determined to return to business as usual. Quite what normal means in a country whose economy is set to outstrip Japan's by 2032 is anyone's guess. 'We have got used to being on an express train that is moving at 120 mph,' says R Gopalakrishnan, Ratan Tata's right-hand man.
The train left the station in 2003, when Goldman Sachs predicted that the economies of Brazil, Russia, India and China (the so-called BRICs) could overtake those of the G6 by 2039, with India having the potential to show the fastest growth over the next 30 to 50 years. Its demographic advantage is immense - with an overwhelmingly young population of 1.16 billion, more than 270 million people are expected to join the workforce over the next two decades. But six years on, and with the world in economic downturn, the question is: can India keep up the pace of change to achieve its mid-century potential, or is the express going to be derailed?
Recent progress has been impressive. Its economy passed a milestone in 2007, when it hit $1trn in gross output, making it the world's 12th-largest. Over the five years to 2008, the average annual rate of economic growth was 8.7%, up from a previous peak of 6.5% in 1999. A recent report by the Asian Development Bank (ADB) called India 2039: An affluent society in one generation, argues that India must sustain growth at around 10% a year over a generation if its citizens are to enjoy an affluent lifestyle.
This is a daunting proposition. India's current GDP annual growth rate is 6.6%. The ADB report lists the obstacles that India must overcome if it is to achieve double-digit growth: infrastructure bottlenecks, abject rural poverty, poor education and healthcare systems, significant government failures, an outdated bureaucracy and poor governance. The outmoded practices and mindsets inherited from the British Raj - described by India's first prime minister Jawaharlal Nehru as 'just carrying on after the manner of the aged - quiescent, devitalised, uncreative, desiring peace and sleep above all else' - must be replaced by the new can-do spirit of India's nascent middle class.
'The BRIC targets are valid and still possible - I am confident of that, and the reason is not economic, it is human and social,' says Gopalakrishnan, a director of Tata Sons. This firm is one of two private parent companies (the other is Tata Industries) that hold controlling stakes in dozens of public companies, from Tata Steel and Tata Motors to Tata Tea. To complicate things, 66% of Tata Sons is held in a public trust. Rather than a fully integrated corporation, Tata is an empire of broad-ranging interests (in India you can buy a Tata car with a Tata credit card, then phone your mother on a Tata mobile).
Gopalakrishnan's modest office in Bombay House, an imposing 1920s building in Mumbai's business district, is as far as you can get from a London steel-and-glass corporate HQ. 'For long, long years, the people of this country have waited to find their place in the sun,' he says. 'Their ambition has been stoked through the various changes that have happened in the world over the past 20 years. I think the greatest thing going for India is the unleashed ambition that has been dormant in the hearts of a billion people. They are going to go for it.'
The evolution of the $62.5bn Tata Group from a small Bombay textile company established in 1868 by ambitious 29-year-old Indian entrepreneur Jamsetji Tata to India's largest company and, in the UK, second-biggest foreign employer of British workers, is that of a home-grown British Raj-era business fulfilling the promise of an independent, outward-looking India. As an ex-colonial era company that has shown the ambition to buy a prestige British brand like Jaguar Land Rover, Tata provokes intense pride and reverence among India's business community. It's like putting two fingers up at their former colonial masters.
Jamsetji Tata's early success was built on by his son Dorab, who diversified the company into steel manufacture, hydro-electric power and aviation. By the end of the 20th century, the group had expanded into chemicals, technology and automobiles. Ratan Tata took over as chairman in 1991, with global expansion as his goal. Circumstances demanded it: India was moving from a socialist, protectionist country to one cautiously eyeing up the opportunities of global capitalism.
As India's domestic markets were opened up at the turn of the century, it became obvious that, whether or not Tata ventured beyond its borders, it would face aggressive foreign competition. Explains Alan Rosling, ex-director of Tata Sons: 'It was a strategic imperative of many of our businesses to internationalise, or they would struggle to remain competitive. In essence, what we have done is taken the bigger businesses of the group and begun a process to try to gain a stronger competitive position in their industries on a global basis.'
So Tata Tea bought Tetley Group for $407m in 2000, Tata Steel acquired Corus for $12.1bn in 2007, and in 2008 Tata Motors bought Jaguar Land Rover from Ford for $2.3bn (and has since brought the world its cheapest car, the Nano). The group's M&A binge is part of a global spending spree by Indian multinationals. Between 2000 and 2008, Indian firms made more than a thousand international mergers or acquisitions worth over $72bn, according to research firm Dealogic. India is now the second-largest source of foreign direct investment into the UK, up from seventh last year.
'With the acquisition of Tetley, we invented what we call the corporate credit card in India,' explains Gopalakrishnan. 'We were coming out of a financially repressive system with controls on foreign exchange and capital, and we bought a company that was three times the size of the one that acquired it, and found a way to use the cashflows of the acquired company to buy it. We stepped up the pace at which we did these things and the balance-sheet leverage increased as we did so; and we went into bigger acquisitions such as Jaguar Land Rover.'
But was Jaguar Land Rover an acquisition too far? JLR had long been a millstone around Ford's neck. In June 2009, JLR reported a pre-tax loss of £281m in the previous 10 months, with sales falling by 32% to 167,000 vehicles for the year to March 2009. It caused Tata Motors to make its first full-year loss since 2001 and instigate a redundancy programme that has so far claimed 1,750 jobs at JLR.
The deal had saddled Tata Motors with a $3bn debt, and it had to call on Tata Sons to underwrite its faltering rights issue last year. The company asked the UK government for financial assistance, but agreement has yet to be reached. Ratan Tata has admitted that the company bought JLR and Corus at an inopportune time. 'If one had known there was going to be a meltdown, then, yes, (Tata went too far), but nobody knew,' he has said.
But was it false optimism that led the group to overreach itself? 'Corus and JLR suddenly made people think we take too many risks, ha!', says Gopalakrishnan. 'Until those two happened, the common person would agree with me if I said that Tata is very old-fashioned, conservative - a bit like Buckingham Palace, doing things the right way, the proper way. Corus and later JLR have suddenly made us look like Yankee cowboys on the stirrup, and I think both images are incorrect.
'What we are doing is to say: OK, the world economy has come down,' he continues. 'That was not in our control, we could not have forecast it, so we are retracting and saying: (we must) get our balance sheet back in balance because it has a lot of debt on it, and consolidate our operations. But the Indian globalisation story is by no means concluded. There may just be a temporary halt to the music and so the dance may not be as frenetic, but the dancefloor will be populated again. It might be one year, it might be two years, but it will be.'
The Indian growth continues to rattle ahead, albeit at a slower pace. Confidence in India's government, led by Dr Manmohan Singh, is high - so high, in fact, that the excitable Bombay stock exchange was forced to close following the Congress Party-led alliance's general election victory in May. Manufacturing, steel and IT have been hit hard by the global recession, but the business community feels that the worst is over. India's cautious liberalising of its financial systems, its low reliance on exports, and its huge domestic market have all protected it to an extent. In his Budget speech last month, finance minister Pranab Mukherjee said his top priority was a return to a high economic growth rate of 9%.
The heady optimism may persist, but is India in danger of assuming that its future success is predestined, rather than predicated on the choices it makes now? India faces enormous social and economic problems, visible every day on any street. A few blocks along from Bombay House, groups of ragged children emerge from the slums that commandeer every spare space - shacks hug the airport runways, the train stations and every modern brick-built, air-conditioned building. The kids walk through the traffic hawking trinkets and magazines, staring through the windows of old-fashioned Ambassador taxis or the modern, air-conditioned Marutis. Here, medieval India - the country of rural villages without clean water or electricity (and where 71% of Indians live) - rubs shoulders with New India, the country of the aspirational middle class and educated entrepreneurs, exemplified by Infosys co-founder Nandan Nilekani.
To the appalling plight of India's deprived add poor basic education - a third of its population are illiterate. 'If this is our Achilles heel,' writes Nilekani in his book Imagining India, 'it is significant enough to make the whole of us fragile.'
India's infrastructure needs investment if the roads, airports and train services are to improve, something of which the Indian government is well aware. The Jawaharlal Nehru National Urban Renewal Mission's 11th five-year plan (2007-12) has earmarked $500bn for India's infrastructure. But India is renowned for its bureaucracy and corruption, a blight on everyday life and business. The list of problems could go on and on, browbeating even the most positive thinker into submission.
'But Indians don't live on air and water, they live on optimism,' explains Gopalakrishnan. 'I suppose in a poor country that is bound to happen. If you are not optimistic, you can't live in this country and grow and prosper. To stoke those little embers of optimism into a little fire is what is really very important.'
From Gandhi's first calls for independence, hopes and dreams are what India has been built on. 'India is young, impatient, vital, awake - a country that may finally be coming close to its early promise,' writes Nilekani. But just how much progress has been made?
'In the past decade, lots of people have moved up,' says Anand Kripalu, president of Cadbury Asia and MD of Cadbury India, which is thriving on the back of this emergent middle class. Cadbury set up office in Mumbai in 1949, and the country is now one of the group's most resilient markets, with profits growing at about 20% a year, and sales at 30%.
Cadbury divides India's consumer market into three tiers. At the top are the rich 2% with an annual household income of £13,000 or more. Next are the middle class, 13% of the population, with an income of £2,600-£13,000. Beneath them are what Cadbury calls the 'aspirers', earning £1,200-£2,600. 'As more people come into the aspirers class - those who just cross the threshold of affordability - then creating products relevant for that market is an enormous opportunity,' says Kripalu. For every percentage of growth that Cadbury wins, the firm becomes more profitable, thanks to India's huge economies of scale. 'You chase volume rather than value, and the more volume you chase, the more scale you get,' he adds.
India's advantages over the other BRIC countries - apart from the high proportion of educated Indians who speak English - are in its scale and volume. With youth comes optimism and hope, but dreams alone do not bring success. Progress will have to be made in everything from education and governance to infrastructure and agricultural productivity if India is to fulfil its ambitions. There are too many obstacles with the potential to derail that express train for anything to be left to fate.
TEN WAYS FOR INDIA TO ACHIEVE ITS 2050 POTENTIAL
1. Improve governance
2. Raise basic educational achievement
3. Grow the universities
4. Control inflation
5. Introduce a credible fiscal policy
6. Liberalise financial markets
7. Increase trade with neighbours
8. Increase agricultural productivity
9. Improve infrastructure
10. Improve environmental quality
Source: Goldman Sachs global economics paper no. 169, June 2008