Ratan Tata, who runs the Tata Group, one of India’s two biggest conglomerates, is buying into a history of trouble with his $2.3 billion cash deal, announced today,  to acquire the Jaguar and Land-Rover companies from Ford (F). Transfer of ownership is due to be completed by the end of June, and the  question is whether he can then break a cycle of decline.

It’s been 40 years since the British government, in a bid to rebuild the country’s automobile industry, cobbled together ailing car brands such as Jaguar, Rover, Austin, Morris and Riley into a giant called British Leyland. BL, as it became known, was a failure, mainly because of endemic labor problems, uninspired products, and poor quality. Since 1968, there have been many rescue attempts, but only rare short bursts of success. Several of the once proud names are long forgotten and none is British-owned; the iconic MG brand was bought three years ago by China’s Nanjing Automobile to make sports cars in China and the U.K., and the Morris Mini cult car is with BMW.

So could Tata succeed where others have failed? There’s reason for optimism. Ratan Tata isn’t expected to treat Jaguar and Land Rover like a traditional takeover: He says he’s not planning to overhaul senior management, close factories in Britain, or cut workers. And he doesn’t seem all that interested in instant profits – just as he doesn’t expect instant returns from the tiny Nano car he hopes to launch by year’s end. Instead, he is expected to use the brands and their U.K. plants, executives and labor to help build Tata Motors, which had $7.2 billion sales in fiscal 2007, into a global car company. His been on this mission for several years, buying Britain’s Tetley Tea in 2000, a Korea-based Daewoo truck plant in 2004, and steel giant Corus (previously British Steel) last year.

Ratan Tata’s hands-off ownership could win him crucial support as he tries to fold the Jaguar and Land Rover brands into Tata. Mark Norbom, the head of General Electric in Japan, wrote recently in the Financial Times about the importance of the “soft side” of a takeover deal. The “look in the eyes that (the buying) company is worthy” has special value, said Norbom, and is something that “does not come naturally to the typical western-trained dealmaker.” Well, it seems to come naturally to Tata and his people. It was evident in the Corus deal, and it seems to be at work again in their Jaguar and Land-Rover plans.

This could, of course, mean that Tata is seen - especially by British trade union leaders - as a soft option who will let workforces carry on as usual. Land Rover has had three years of record sales for Tata to build on. But there’s no telling how long the status quo can last, especially if demand slackens in the United States and elsewhere and Ratan Tata has to institute cutbacks at the luxury car makers.

Tata has said that Land Rover and Jaguar will benefit from India’s low-cost design and IT ability - and boost sales in Asia. His company will “add value in co-operating on engineering and development which are considerably cheaper (in India) than in the west,” he said. Tata Technologies, the group’s advanced industrial design house, is based in Pune and operates in twelve countries, with international headquarters in Singapore. It has been involved in the design of Tata Motors’ cars and vans, but does about 75% of its work for foreign clients, including Chrysler, General Motors (GM), Boeing (BA) and Airbus.

There’s another question hanging over the deal: Tata’s future once its 70-year old patriarch retires. He is not due to step down until he’s 75 - in December 2012 - but has said he would like to go earlier, and there are rumors it could be at the end of this year. That seems unlikely, if only because there is no clear successor. From inside the Tata family there is a reclusive cousin, Noel Tata, who runs some of Tata’s retail businesses, but there is no sign of him being groomed for the corporate and public life that goes with the job. One or two top executives from outside the family, and even outside the Tata Group, have also been rumored, but none has been publicly held out as a successor.

It is Tata who has provided the personal drive and leadership to turn Tata Motors into a business that can produce the Nano and buy two world famous brands - in the same year. There’s a big job waiting for someone – and Tata is not yet saying who. Until it does, the era uncertainty at Land Rover and Jaguar won’t be over.

At India’s DefExpo defense show this week, Tata announced a string of tie-ups with foreign manufacturers from the United States, Israel and Europe that set it apart from other emerging Indian defense manufacturers like Larsen & Toubro (L&T) and Mahindra & Mahindra.

The Tata group is becoming well known around the world for its low cost car, its bids for the Jaguar and Land-Rover brands, and for taking over Europe’s Corus steel company. Now it is emerging as the Indian market leader in a new area – defense equipment.

The company is transferring India’s proven ability to produce low-cost software and international-quality auto components and cars to the defense and aviation industries, persuading companies like Boeing (BA), European Aeronautic Defense & Space Company and Israel Aerospace Industries that they can benefit by buying from India.

The pairing with IAI is probably the most important announced in the past week. A joint-venture company is planned to develop and manufacture defense and aerospace products such as missiles, unmanned aerial vehicles, radars, and electronic warfare and security systems. With EADS, Tata will be bidding for a long-delayed $1 billion Army communications system, while it is to supply Boeing with aerospace components – including orders for the United States Air Force – totaling $500 million over five to eight years. There is also a helicopter cabin order from Sikorsky Aircraft Corporation.

The main prize that everyone wants is a $10 billion Indian Air Force order for 126 multi-role combat aircraft (MRCA) that is now out to tender. Robert Gates, America’s defense secretary, will push Boeing’s and Lockheed’s bids when he is in Delhi next week to try to revive slow-moving joint defense and security collaboration agreements.

India’s private sector has historically played a very minor role in the country’s $10 billion-plus annual capital expenditure on defense equipment. Up to 70% is spent abroad because the Indian public sector cannot deliver in terms of quality or speed on either research or production. Only about 30% of the orders placed in India (around 10% of the total) goes to firms like Tata, L&T, and Mahindra because the public sector-dominated defense establishment has never allowed the private sector to develop. That is beginning to change, but only slowly.

In June last year, I wrote a post saying India would soon announce names of a small number of Indian private-sector companies - Raksha Udyog Ratnas or, literally translated, “defense industry jewels” - that would be allowed to compete for big research, development and production projects on equal terms with the public sector.

I should have known better, as I wrote last October when it was becoming clear that the policy would be blocked. The names have still not been announced, and it doesn’t appear that they will be, at least until after the general election  next year, because of opposition from Leftist political parties, encouraged by trade unions and the defense establishment.

There is also a new offsets policy which requires foreign defense suppliers to spend 30%-50% of their orders in India. The government has forecast this could generate $12 billion in orders in the next four to five years - among the first will be business from Lockheed (LMT) for six Super Hercules C-130J military transport aircraft costing $1 billion that India ordered earlier this month.

It will be some time however before offsets produce orders that provide economies of scale, so Tata wants to build manufacturing capacity independent of how the Ratnas and offsets develop. Tata Advance Systems has been set up to manage the manufacture and integration of orders, and Tata Industrial Services will match Tata’s and other Indian companies’ capabilities with offset and other requirements from abroad. For large projects, various group companies such as TCS Aerospace (software), Tata Power, Tata Advanced Materials and Tata Motors will pool capital raising and risk management resources.

This will enable Tata, one of the country’s two largest business houses, to build up capacity and scale so that it is ready to manufacture in quantity for the Indian defense forces when it is allowed to do so. It also enables foreign defense companies to get used to working in India at a time when they are about to be forced to use Indian components through the new offsets policy. Other companies are also making similar moves, though none is so wide-ranging as Tata which, so far, is winning.