Tata Steel

Dear Shareholder,
 
 Global Meltdown
 
 After decades of global growth, the world watched in horror as
 financial institutions collapsed, first in the United States followed
 by Western Europe and the United Kingdom. The crisis then spread to
 nations in Eastern Europe, Asia and other geographies. This global
 meltdown had a widespread and devastating effect on the world-wide
 banking system, stock markets, pension funds, individualsnet worth and
 ownership of assets. It was a financial crisis of proportions
 approaching that at the time of the Great Depression of 1929.
 
 In their efforts to restore fiscal stability and credibility of
 thebanks,vanongovernments stepped in with financial packages to assist
 banks and other financial institutions, with a view to normalising the
 financial sector. However,
 
 in most cases, these funds were used by the receiving institutions to
 shore up their own balance sheets, and very little reached the real
 economy
 
 The resultant lack of liquidity in the market, resulted in the drying
 up of consumer credit and working capital, leading to an unprecedented
 reduction in demand and the consequent inability of companies to
 finance their operations. This led to a domino-effect downward spiral
 in various industrial sectors like construction, automobiles, consumer
 products and capital goods.  The effects of this downturn were
 initially felt in the industrialised nations but spread quickly to most
 other countries around the world.
 
 The global downturn also had a major effect on various industries
 dependant on steel. Major contraction in the construction projects,
 automobiles, white goods demand from the third quarter of 2008-09
 resulted in the global demand for steel dropping by 21% compared to the
 level consumed in the same quarter of the previous year.
 
 While the economic scenario in India may look similar to that in the
 West, the situation was entirely different.  Unlike the international
 banks and financial institutions, Indian banks did not hold toxic paper
 nor had they invested in sub-prime assets. Their loan portfolios were,
 by and large, healthy. What did happen was that in June 2008, the
 Reserve Bank of India raised the Repo Rates and the Cash Reserve Ratio
 of the banks, consciously curtailing liquidity in the system to combat
 inflation which had reached a level of around 11%. Predictably, the
 economy began to slow down in several sectors.  The corporate sector
 and particularly small businesses increasinglyfaced difficulties in
 running their businesses, due to the lack of available finance and
 credit facilities.  GDP growth declined from a level of 9% to 6.7% as
 new investments were deferred and output fell.
 
 The situation was compounded when, as a result of the financial crisis
 in Western Europe and the United
 States,foreignfinancialinstitutionsandforeign investors hurriedly
 liquidated their investments in India, leading to the collapse of
 Indian stock prices. Therefore from the second half of 2008-09 Indian
 industry was constrained to operate with very limited access to working
 capital, an inability to raise funds from market sources and a drastic
 drop in consumer demand.
 
 The good news is that the economic revival in India is beginning to
 take place faster than most people expected and with the new
 governments plans for increased spending in infrastructure as well as
 rural development, the recovery in India is expected to be robust. Many
 believe the US economy has bottomed out, but that UK, Europe and Russia
 may fall still further. The general view is that an economic recovery
 in the Western world would probably only be in late 2010.
 
 Tata Steel
 
 The effects of the world economic downturn seriously impacted our
 Companys global operations in the second half of the year under
 review. The demand for steel declined by 26% in the UKand Europe in the
 third quarter compared to a year earlier and after a further
 contraction in the fourth quarter, demand had fallen by 57% in the UK
 and 44% in Europe compared with a year ago. This reflected in a sharp
 downturn in private construction projects, as well as large falls in
 automotive and mechanical engineering, amplified by severe destocking
 by both end users and service centers. Indian operations witnessed a
 less pronounced drop in demand of 11% in the third quarter, reflecting
 the reduced activity in infrastructureand commercial vehiclesJhereare
 however signsthattheinfrastructureand road building activities in India
 are gaining momentum, as a result of some of the governments actions
 to revive the economy.
 
 Tata Steel has taken aggressive steps to meet the challenges of these
 difficult times through major initiatives in cost reduction, process
 improvement and production rationalisation. The highest priority is
 being given to expanding steel producing capacity in Jamshedpur, and
 ensuring raw material security for the European operations which do not
 have captive iron ore and coal resources. Production rationalisation is
 also being undertaken in Europe and the UK to right-size manufacturing
 facilities to be in sync with the lower off-take by the market. The
 same approach is also being taken in the Companys Asian subsidiaries.
 
 The past year and probably the next 12-18 months are likely to be
 difficult and challenging times for Tata Steel. However, the spirit of
 the Companys employees, coupled with their commitment to meet the
 challenges, I am sure, will see Tata Steel come out of this difficult
 period, as a more cost-effective steel manufacturer with a stronger
 global market presence and an enhanced capability in producing new
 grades of steel products to better serve its customers.
 
 In ending I would like to thank all my colleagues and our unions at
 Tata Steel for their support and understanding through the year. They
 have collectively made the Company what it is today, and will help lead
 the Company into tomorrow. I would also like to thank our shareholders
 for the trust they have reposed in the Company over the years.
 
                                                   Chairman 
 Mumbai, 31st May, 2009