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 to Tata Motors is due to be completed by the end of June, and the  question is whether Tata 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? Market and industry analysts have their doubts, fearing the companies do not fit and that Tata’s optimism about growth could be hit by worsening economic problems in the United States and elsewhere. Tata Motors shares lost 4.4% on the Mumbai stock market today as brokers awaited the announcement.

But there is some 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. He said today: “We have enormous respect for the two brands and will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact. We aim to support their growth, while holding true to our principles of allowing the management and employees to bring their experience and expertise to bear on the growth of the business.” Ford will continue to supply Jaguar and Land Rover with powertrains and other components, in addition to a variety of  environmental and other technology and support services.

Tata also doesn’t seem all that concerned about 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. He’s 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 top 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 of uncertainty at Land Rover and Jaguar won’t be over.

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.

Ratan Tata has achieved his dream. This morning the chairman of Tata Sons, one of India’s two largest companies, unveiled his “Peoples’ Car” at a pop star-style media circus staged at the Delhi auto show. He fixed the price of a basic 623cc model at the much vaunted level of one lakh (a hundred thousand) rupees or about $2,500. That makes it the world’s cheapest car, though it may not be very profitable. And he named it Nano – to conjure up high tech and small size images.

“A promise is a promise” he said, announcing the price. When I asked him whether the figure would otherwise have been higher, he said the promise had been a response to what had appeared in the media. This had become “a challenge” that he felt he had to meet. He’s proud that he has launched “a means of transport that does not exist”, enabling families to move up-market faster from motor cycles that frequently carry three young children as well as parents.

The basic model of this handsome elongated bubble of a car will have the dealer price of $2,500 but will cost the consumer about $3,000 with tax and delivery costs when it is launched toward the end of this year. That is about three times the price of an average motorcycle and half that of the Maruti Suzuki 800cc saloon, currently India’s lowest priced car. More luxurious versions, with air conditioning and other features, will be priced higher. The car is unlikely to be exported for three years or more but, when it is, extras such as air conditioning and power brakes and steering would be added.

Rajiv Bajaj, managing director of Bajaj Auto, claimed this week when he launched a concept $3,000-plus car to be developed with Renault and Nissan (NSANY), that Tata (TTM) had never said his one-lakh car would be profitable. Today Tata dodged the question, saying the auto show was “not the platform to talk about breaking even.” Margins would be “spread over several models” and, with variants, the car would be “a profitable proposition for the company.”

Contrary to recent mocking jibes, Nano would meet all emission, pollution and safety norms, though its basic India version would not be sufficient for full European emission and side-crash requirements, nor have an air bag. Its maximum speed will be about 65 miles an hour with regular gas (diesel will follow later) consumption of 50 miles to the gallon.

Tata would not say much about how the low price has been achieved beyond that his Indian designers had “shrunk the package of the car” so that less steel and other materials are used, along with a smaller engine. But it is only 8% smaller than the Maruti 800, though it has, Tata claimed, 21% more inside space. Some savings will come from locating suppliers on the same site as the main Tata Motors factory in West Bengal (which has been hit by rows over use of land). Further savings might be made later by using subcontractors to assemble cars nearer the point of sale.

Overall, Nano is undoubtedly a major achievement for Indian design and manufacturing. It is also a huge personal success for Tata, whose ideas have been met with widespread incredulity since he first broached the idea nearly ten years ago of moving families off dangerously overloaded motor bikes and into the relatively greater safety of a low cost car.

He has said recently that he would like to retire before too long and that it would be a good time to do so when the Nano is fully launched. He is now 70 and is due to go by the time he is 75. “I do not want to go out in a wheelchair,” he recently told Business World, an Indian business weekly. But first he has to find a successor who can provide the widely diversified and growing Tata group (currently bidding for the Jaguar and Land-Rover car businesses) with the type of strong leadership that he has achieved - and that seems to be posing him with a more difficult challenge than designing and unveiling the Nano.

One of India’s most controversial politicians, Narendra Modi, scored a notable victory last weekend when the Bharatiya Janata Party (BJP) won assembly elections in the state of Gujarat and he was sworn in (on December 25) as chief minister for a third term.

The result is good for business; whether it is good for social cohesion and harmony between Hindus and Muslims is another matter. Modi represents the hard Hindu-nationalist wing of the BJP and is widely regarded as being strongly anti-Muslim – especially following Gujarat’s devastating Hindu-Muslim riots in 2002 when more than 1,000 people died. He is one of India’s most charismatic politicians and is seen as a potential future prime minister, but he is widely feared for his communal views, and is resented by many other BJP leaders because of his autocratic and often arrogant style.

His main success is that, as chief minister, he has built on Gujarat’s strong business and entrepreneurial traditions, bringing new foreign as well as Indian investment to the state and winning the support not only of famous Gujarti tycoons, notably Mukesh Ambani of Reliance Industries (RIL), but also other such as Ratan Tata, head of the Tata group. Much of this investment, however, has been in large-scale and urban projects that have done little for the rural poor who desperately need better services and job-generating investment. It is a personal tribute to Modi that he has won despite failing in this area.

The main political significance of the election result is the failure of Congress, India’s leading national party, to add significantly to its tally in a state assembly where it has only 59 the 182- seat compared to the BJP’s 117. That is not only bad news for Congress’s national image. It is also a resounding defeat for the Nehru-Gandhi dynasty that has played a leading role in Indian politics since independence in 1947. Sonia Gandhi, Congress’s Italian-born leader and the current head of the dynasty, campaigned widely in Gujarat, but seems to have had little impact. Her son Rahul Gandhi, who is being groomed to be a future prime minister, made one campaign appearance in the state and also failed to motivate voters.

There are two points here. One is that the result illustrates the limitations of a dynasty – that the family involved rarely if ever allows alternative leaders to emerge. Congress, which currently means Sonia Gandhi, always names its chief minister after assembly elections, not before, and usually only after that person has shown due obeisance. So in Gujarat there was no strong Congress chief ministerial candidate to challenge Modi head on. Instead the Congress main campaigner was Sonia Gandhi, who was never going to be chief minister and, while pulling crowds to her meetings, couldn’t generate votes.

The second point is that Congress nationally is now likely to be more wary of risking an early general election over India’s proposed nuclear deal with the United States. Leftist parties that support India’s Congress-led government are threatening to withdraw support if the deal goes ahead, and that could trigger a general election within months. Following the Gujarat result, Congress seems more likely to go slow on the deal than risk an election.

So the Gujarat result is good for the BJP and even more significant for Modi. It is bad news for Congress and the Gandhis, but good for political continuity nationally because it makes a general election in the next few months less likely.

The Tata group’s Indian Hotels company, which runs the Taj hotel brand, has sent an angry riposte to Orient-Express (OEH), a UK-based hotels-to-trains company that last week said an association between the two companies would reduce the value of OEH brands. Krishna Kumar, vice chairman of Indian Hotels and a director of Tata Sons, the parent company, last night accused Paul White, OEH’s president and CEO, of being “highly misinformed and unduly aggressive”. A letter sent to him by White was “pejorative, inaccurate and libelous.”

This escalation of exchanges between the two companies could be building up into a major row unless OEH backs down. Kumar denies White’s claim that Indian Hotels had launched a takeover bid for OEH and insisted he only wanted to develop joint activities in areas such as sales and human resource initiatives. Kumar pointed out that Indian Hotels’ 11.5% stake in OEH makes it the largest shareholder. He added that OEH “does not respect the most basic tenets of corporate governance” because it was refusing a dialog with his company and with Dubai Holdings, a Dubai government investment company that is the other largest public shareholder.

He ended the letter saying that “those with a fossilized frame of mind risk being marginalized” – which looks more like a warning that Indian Hotels will beat OEH on the ground rather than trying to take it over. Time will tell.

It’s not the job of this blog to track all the moves in such corporate battles, but I have returned to this one as a follow-up to what I wrote last Monday, which provoked dozens of fiery comments.

Answering some of those comments, I live in India (as I have explained before) and I have stayed in many Taj hotels over many years – at Pune, Hyderabad and Chennai in the past few months. And I do drive a Tata car – I have a slightly battered but lovely old Sierra (born out of the Tatamobile that someone mentioned, and related to the Sumo), which I have driven happily for the past 12 years. Sadly I’ll have to replace it soon.

All comments are most welcome – that’s what blogs are all about – so thank you everyone. But most of the attacks have been over things I did not say.

I have also written in Fortune magazine recently that Indian manufacturing is now transforming itself. No one I know in India disputes how appalling quality has been in the past, so I am amazed by such angry comments (mostly from outside India) about what in India is undisputed.

My views on Taj hotels stemmed from my own and many visitors’ experiences. My comments on Jaguar and Land-Rover were limited to the impact on their image of possibly being Indian owned– I did not comment myself on whether the best owner is or would be Ford (F), Tata or One Equity Partners.

Happy Holidays

After a string of successes, India’s industrial giant, Tata, has hit a rough patch in the United States. Advances made by Indian Hotels, which runs the Taj brand, to Orient-Express (OEH), the U.S. owner of luxury hotels, trains and cruises, have been firmly rebuffed. And American dealers selling Jaguar cars have objected to Ford selling the British luxury brand to Tata Motors (TTM).

The setbacks are a blow to Ratan Tata, chairman of Tata Sons, the group holding company, and one of the world’s 25 most powerful people in business. Early this year, he scored his biggest triumph when Tata Steel bought Corus, the British steel company, for $12.1 billion, defeating a strong rival bidder, CSN of Brazil, in a dramatic knock-out contest. Now Tata is bidding along with Mahindra & Mahindra (M&M), another leading Indian autos-based company, to buy the Jaguar and Land-Rover brands from Ford (F).

Some analysts question whether Tata Motors can handle Jaguar and Land-Rover, especially their difficult trade unions. Critics also point out that Tata is more focused on smaller cheaper cars – including a low-end model now in development that it plans to sell for around $3,000. That feeds U.S. dealers’ worries that Jaguar would lose its upscale image if it were Indian-owned - whether it’s bought by Tata or M&M. 

Ken Gorin, chairman of the Jaguar Business Operations Council, which represents Jaguar car dealers in the U.S., has said that Ford should sell the two brands to another bidder, One Equity Partners, a private equity arm of J.P.Morgan Chase (JPM). He’s reportedly concerned that the American public won’t accept a luxury-car brand such as Jaguar “out of India.”

Gorin, of course, doesn’t get to decide who buys the brands, and the deal is still open - with Tata being tipped to win in some reports. But he has a point: Indian manufacturing is only starting to gain acceptance internationally. Foreign car companies are increasingly looking to India for supplies of components and even complete cars – Suzuki Motor announced last week that a factory near Delhi will supply its planned A-Star car to Europe and elsewhere. But A-Star is not a luxury model.

Perceptions about the low quality of Indian products are also behind Orient-Express’s rebuttal of Tata’s moves for a closer relationship. Indian Hotels increased its stake in Orient-Express to 11.5 percent recently, prompting Paul White, the CEO of Orient-Express, to say a combination was not in his company’s interests. “Any association of our luxury brands and properties with your brands and properties would result in a reduction in the value of our brands,” he told Indian Hotels, which is expected to respond to the rebuff shortly.

White’s remarks shocked officials at Tata’s Taj hotels, who deem their hotels to be one of Asia’s, and maybe the world’s, best. Taj hotel guests, however, do not always rate them so high: There are frequent complaints about the quality of service and inferior finishes. The group’s award-winning Taj hotel on the waterfront in Mumbai is one of Asia’s most splendid buildings, but service there does not always match the elegance.

 So it is perhaps not surprising that White has serious reservations. What is more curious is that Tata has pursued the company despite the cool reception. Ratan Tata recently said in a television interview that he does not like hostile takeovers.  “We walk in the face of opposition on an acquisition bid,” he said. What’s more, he denied that Indian Hotels is seeking to acquire the Orient-Express. Tata approached Orient-Express management “basically to seek an alliance and were misunderstood,” he said.

Meanwhile, Indian jingoism is on the rise in the media and among the country’s politicians. “Racism can’t halt Indian takeovers,” declared the Economic Times, a leading business daily, slamming “quasi-racist slurs.” Kamal Nath, India’s outspoken commerce minister, said “there cannot be any discrimination against outward investment from India.”

The bluster is unfortunate. A more effective tack for Indian officials would be to accept that their country is just beginning to lose its decades-long reputation for dreadful quality – and to vow to show the world that it can do even better.

Rajiv Bajaj, managing director of Bajaj Auto, India’s second largest motor cycle manufacturer, was in a buoyant mood when I met him at the Fortune Global Forum in New Delhi this morning. Fortune invited him to speak at the Forum yesterday about the feasibility of producing a low cost car, but he had to pull out because, he wrote in a letter, “the CEO of one of the world’s largest automotive companies” was visiting his headquarters in Pune and a nearby factory at Chakan.

That CEO turned out to be Carlos Ghosn of Renault, who is talking to Bajaj about producing what colloquially is known as a “one lakh” car, though Ghosn has said he’s thinking of a $3,000 price tag, which is about 1.2 lakhs of Indian rupees (Rs120,000). I checked the price with Bajaj this morning and he replied:  “Yesterday he (Ghosn) said $2,500 (roughly one lakh) – he’ll be giving it away free by the end of it!”

Bajaj said today that his aim is “not to produce a mainstream four wheeler”  but something that “takes forward our skills and cost structure as a two and three wheeler manufacturer.”  It will be a car which is “under four meters long” compared with the more usual five or six meters and will use a “unique breakthrough engine technology” that would “have its roots” in the two and three wheeler area. Bajaj plans to unveil that technology at India’s motor show in New Delhi next January.

Ghosn took some executives from Nissan, which he also controls, to Pune yesterday and the plan, said Bajaj, is a “three-way exclusive global alliance” between Bajaj, Renault and Nissan for manufacturing and marketing. Ghosn, who is also producing the mid-size Logan saloon with Mumbai-based Mahindra & Mahindra, and is planning a light commercial vehicle with Hinduja-controlled Ashok Leyland in Chennai, hopes to finalize the Bajaj deal soon.

There is now a race to see who can produce what fastest for the bottom of India’s four-wheeler motoring pyramid, enabling people to move up faster from scooters and motor bikes - the cheapest car currently on the market is a 23-year old 800cc model from Maruti Suzuki priced at Rs220,000.  Ratan Tata, head of the Tata, one of India’s two largest groups, has also been trying to produce a “one lakh car” (about $2,500).

But he has admitted it will cost more and is believed to have failed to produce his dream of a revolutionary vehicle – for example with a plastic body and bars instead of doors, according to some reports. Bajaj also wants to cut customers’ maintenance, fuel, and hire purchase spending to a monthly “cost of ownership” of $150, which he says is not much more than half the cost of keeping a current small car and twice that of a motorbike.

So let’s how he and Ghosn adapt the Bajaj two wheeler engines and three-wheeler auto-rickshaw bodies into a four wheeler – that could be an interesting vehicle.

India knows it has something to celebrate Wednesday, the 60^th anniversary of its independence from Britain.  That may sound obvious, but it isn’t, because 10 years ago many people said they were not sure what there was to be proud of on the 50th anniversary.

People bemoaned the country’s failure to get to grips with endemic social and infrastructure problems, especially poverty, education, health, roads, and power. There had been a spate of economic reforms after a humiliating international financial crisis in 1991, but they had sputtered to a virtual halt. Business was not doing anything very dramatic, and there were only glimmerings of the information technology-led boom and more recent manufacturing renaissance.

Today, many of the problems – especially social – are little improved. Vast proportions of the country’s 1.1 billion people are undernourished and hungry, as well as poorly educated and illiterate. Blighted by a lack of drinking water and proper sanitation, many are plagued with poorly-treated ill health.

But the country’s overall self-confidence, and its economic performance, is being transformed. In the past four or five years, a spirit of “can-do” has inspired businesspeople – big and small, ranging from names like Ratan Tata, Mukesh Ambani, Azim Premji and the Infosys founders to small niche players — who invest, manage, deliver, and grow both at home and abroad. Funds are more often than not raised legitimately, rather than via a friendly politician’s influence on a pliant public sector bank.

Companies operate in a mostly open market, knowing that they must manage efficiently and deliver quality or fail. Many of the names at the top of the business league tables have changed in the 10 years from old Marwari trading caste families, which thrived in a controlled economy, to new entrepreneurs. Family control of companies is still widespread, but the newcomers have an ambition to succeed in India and abroad that was previously often lacking.

That has been shown most dramatically by the recent surge of takeovers overseas, spearheaded by the Tata group and by IT and pharmaceutical companies. Similarly, the growth in the number of executives from abroad who are prepared to work in India – foreign as well as of Indian origin and not just on lucrative postings – reflects both the availability of internationally competitive salaries and a more conducive working environment.

Consequently, economic growth has risen in the 10 years from around 6% to almost 10%. The Mumbai stock market’s Sensex index has gone from under 3,500 to a peak last month of over 15,800. The rupee has recovered a decades-long slide and is now strengthening against world currencies (not just because of the declining dollar), and foreign exchange reserves have rocketed from $26 billion to around $230 billion. India is also earning new respect as an international player, not least with the United States, which is on the brink of signing a nuclear deal that will transform the two countries’ diplomatic and business relationship

One the flip side, some things are getting worse. The quality of governance is declining, especially in the states, because many politicians and bureaucrats are becoming more corrupt and self-serving. Parts of the country are appallingly run, especially Uttar Pradesh and Bihar, which for years have been almost as bad as Pakistan in terms of political failure — and their economies are worse. Maoist Naxalite rebels control vast areas of other states. There is little urban planning or respect for regulations: construction of new buildings takes little account of environmental standards or the need, for example, for adequate drainage and other services. Even more seriously, the economic boom is leading to intense pressure on land in a country where 70% of the population relies on it for its living. In the next ten years, it is quite possible that social unrest will be caused more frequently by land disputes than by traditional religious and ethnic differences.

Despite these problems, India is on the move. When Jawaharlal Nehru, the first prime minister, made his famous “midnight hour” independence speech on August 15, 1947, he referred to India’s “tryst with destiny,” and called on people “to work and work hard, to give reality to our dreams.” Ten years ago that work ethic had not materialized. Today it is operating in the private sector, generating most of the successes. Think what could be achieved if the politicians, bureaucrats and public sector did the same.

India is a country of dynasties. They dominate politics at all levels. They are present in many top companies, and they even pervade Bollywood - and they are constantly in the news. Within the past few days, Rahul Gandhi, heir apparent to the leadership of the powerful Nehru-Gandhi dynasty that runs the Congress Party, has suffered a serious personal setback in Uttar Pradesh (UP) assembly elections where Congress did badly. A bitter dynastic row among politicians in the southern state of Tamil Nadu has led to the sudden resignation of Dyanidhi Maran, the country’s able communications minister. Arguments in Bajaj, one of the best known business families, are leading to a split that is now being finalized by Rahul Bajaj, the family head. And only last month the media was swamped by the wedding of Abhishek Bachchan - film star son of one of India’s most famous stars - to Aishwarya Rai, a female film star.

The ups and downs of dynasties are not just the stuff of gossip and news headlines. They are so pervasive that they affect how India and business are run, and by whom – much more so than say in America, despite the presence there of political and business families like the Kennedys, Bushes, Fords and Rupert Murdoch. Whether this is a good thing for India is highly questionable. Certainly political dynasties provide continuity and recognizable names and faces for the uneducated to support. Sometimes successful leaders emerge. Sonia Gandhi, current head of the Congress, has saved her party from political disaster and possible splits, and brought it back to power at the head of the current coalition government. But, more often, family members enter politics to protect (often illicitly) wealth accumulated by their fathers and other relations and to sustain the gravy train.

In companies, strong leaders also sometimes emerge. Ratan Tata has successfully built up Tata, one of the country’s two largest groups. Both Kumar Mangalam Birla and his late father, Aditya Birla, have done similarly with their businesses, and there are also successes in the younger generations of families such as Bajaj, Mahindra and Thapar. But there are many failures as well - as has been demonstrated by the gradual decline of several other parts of the Birla family’s empire, which was once a dominant force. The business fortunes of other old families have also faded since the early 1990s when economic liberalization made them compete or decline.

Life in dynasties is never simple – human greed and ambition make sure of that. Maran had done a good job running the government’s telecommunications ministry but has become caught up in jealousies over dynastic political succession. He got the government job because Muthuvel Karunanidhi, Tamil Nadu chief minister and his grand uncle, nominated him following the death four years ago of his father, Murasoli Maran, who was industry minister. But last week a Maran-owned tv station published an opinion survey suggesting that Karunanidhi’s younger son was ahead of an elder brother in political succession stakes. Infuriated, the elder brother organized a violent attack on the tv station’s offices, where three people were killed. These events deepened a family rift and Karunanidhi, whose DMK party is part of the Congress-led coalition government, forced Maran to resign.

The Bajaj story will be the subject of a later blog. Basically it comes down to what happens in many business families after two or three generations, when younger family members want to enjoy and run their own slices of the wealth. Sometimes such splits are managed relatively quietly and well. The Birlas have been gradually separating their massive empire since the early 1980s with little publicity, but the Ambani-controlled Reliance group split in a very public second generation row two years ago. Now Rahul Bajaj is trying to resolve his sons’ and cousins’ ambitions without too much public rancor.

So yes, dynasties do rule, and it sometimes is ok. But they are often protected from some of the impact of market forces, both political and business, so are unduly resistant to change. They block the emergence of new leaders in political parties, and they demotivate top executives who have little chance of reaching the top. It is for example inconceivable that anyone but a Birla (with one exception, now in the courts) or a Bajaj would head those families’ empires. The only notable exception is Ratan Tata who is believed to be considering whether it would be best if a non-family member succeeds him in a few years’ time.

It is also inconceivable that the Congress Party will for years to come have any leader other than a member of the Nehru-Gandhi dynasty, which has been in charge for most of the past 60 years. And Rahul Gandhi, Sonia Gandhi’s 36 year old son, will not lose his heir-apparent status because of his party’s drubbing in the UP elections, even though he led and dominated the Congress campaign.

Such dynastic longevity is of course good for the families involved, and for those who cluster sycophantly around them. But dynasties stymie development and, when they are as pervasive as they are in India, their impact overall is more negative than positive.