A behind-the-scenes look at just how the A B Vajpayee Administration pulled off a deal with Suzuki Motors.

By Rajeev Dubey

At 4 p.m. on a quiet Sunday afternoon, June 7, 1998, a Japanese business executive drove into South Delhi's Maurya Sheraton Hotel, walked up to the reception, and was quickly escorted to a room on the third floor. A couple of hours later, two other Japanese businessmen were escorted to other rooms in the same hotel. Related, these three check-ins were far from normal. None of the rooms had been booked in the executives' own names, but by a Delhi-based ad agency, Integra.

Actually, the trio--K. Saito, J. Sugimori, and Y. Saito--had flown in from Hamamatsu (Japan), and represented the $12.87-billion Suzuki Motor Corporation (SMC). Their single-point agenda: end the nine-month-old stand-off with the Government Of India (GOI)--SMC's equal partner in the Rs 8,454-crore Maruti Udyog--over the appointment of R.S.S.L.N. Bhaskarudu as Maruti Udyog's managing director on August 27, 1997.

The secrecy, though hardly out of the ordinary for the Japanese, was crucial to circumvent any last-minute opposition to a deal that had been negotiated. The next day, the three managers held a final round of discussions with the Union Minister For Industry, Sikander Bakht, 80, and the Secretary, Heavy Industries, M. Shankar, before signing on the dotted line. The same day, at 12 noon, Bakht announced in Parliament that the GOI had worked out a compromise formula: while SMC would withdraw its case against the GOI in the International Court of Arbitration (ICA), the latter would appoint Y. Saito as the chairman of Maruti Udyog. And the GOI also agreed to curtail Bhaskarudu's tenure to December 31, 1999--instead of August 27, 2002--and appoint Jagdish Khattar, director (marketing), Maruti Udyog, as the next CEO as SMC desired. In the interim, Khattar would be elevated as the joint managing director with effect from July 1, 1998.

While the compromise was expected, Bakht's announcement caused a furore in Parliament, with the deal being denounced as "anti-national" and a "sell-out." Claims the former union minister for industry, Murasoli Maran, 60, whose support for Bhaskarudu failed to break any ice with SMC: "The agreement is shrouded in secrecy. Who came? Who negotiated? Nobody knows. It is a total surrender (by the Indian government). The Japanese have been given more (concessions) than they expected."

While that might be so, Maruti Udyog is not complaining. And for good reason too.

• Maruti Udyog will now have access to fresh designs from SMC to upgrade its best-selling Maruti 800 model with a new, and more powerful, car. SMC has a prototype ready, which has a multiple-point fuel injection system, an aluminium engine, and a more powerful air-conditioner. The aluminium engine will not only reduce the cost of the Maruti 800's successor, as well as of the company's other models, it will also meet the stricter emission norms to be imposed after January 1, 2000.
• SMC plans to upgrade the Omni--the cheapest vehicle in Maruti Udyog's stable--with a model based on the more powerful WagonR.
• And SMC will give Maruti Udyog's vendors access to fresh technology.

How was Bakht able to work out a compromise with SMC when two former industry ministers--Maran (April, 1997, to March, 1998) and K. Karunakaran (June, 1995 to May, 1996)--had failed to do so? In short, Bakht's colleagues--unlike Maran's--gave him their full support. BT learns that the behind-the-scenes manoeuvring began as early as April, 1998, a few weeks after the Bharatiya Janata Party (BJP)-led coalition was sworn in.

Surprisingly, the film actor-turned BJP Member of Parliament, Shatrughan Sinha--who was invited by SMC chairman Osamu Suzuki to the company's headquarters as part of its celebrations of India's 50 years of Independence on April 14, 1998--played a key role in bringing the two estranged partners back to the negotiating table.

Apparently, after Sinha returned from Hamamatsu, the SMC representative in India, N. Kawahara, remained in touch with him as well as other point-men in the BJP. They met at least twice in a week to finalise the terms of the truce. Confirms Mathew Abraham, 37, the general secretary of the Maruti Udyog Employees' Union: "SMC interacted with the BJP through Sinha."

However, after Sinha's initial efforts, Industries Secretary Shankar became actively involved in the discussions. Says a bureaucrat closely associated with the talks: "He was a good negotiator, taking a tough stance when required, and softening a bit on other occasions." A key role was also played by the former political advisor to the Prime Minister, Pramod Mahajan, who voiced the thinking of the BJP top brass on two points: Bhaskarudu should not be removed unceremoniously--a demand of aiadmk leader J. Jayalalitha. And any agreement must have a nationalistic flavour.

As it turned out, Mahajan's demands went in SMC's favour since they forced the GOI to concede more ground in lieu of letting Bhaskarudu continue as the CEO for another 18 months. Rejecting outright a proposal to appoint an outsider as Maruti Udyog's managing director, SMC ensured that Khattar would be the new incumbent. He, after all, was SMC's original candidate for the post (see Just Who Will Drive Maruti Tomorrow?, BT, February 7, 1998). Perhaps the most important gain for SMC was the inclusion of a clause stating that, in future, all high-level appointments at Maruti Udyog would be made with the mutual "consent and concurrence" of the two partners.

At the end of the day, the crucial catalyst was the GOI's desire to see the deal through. That was accentuated after the nuclear tests on May 11 and 13, 1998, when Japan imposed sanctions on India. The GOI was keen on sending out a positive signal to the Japanese government. Explains Jagdish Shettigar, 50, member (economic cell), BJP: "We realised that the Japanese sanctions would hurt us more than those imposed by the US government."

More pressure to settle the dispute quickly came when the GOI realised that pursuing the ICA case was a lose-lose situation. Even a judgement in the GOI's favour--ica chairman L. Yves Fortier was to deliver his verdict on June 20, 1998--would have resulted in a majority for SMC on the 11-member Maruti Udyog board. And a verdict in SMC's favour would have, of course, led to a loss of face for the GOI.

Now, Maruti Udyog will be able to breath a little easier. Apart from the absence of new models, the interest burden on its fresh debt would have hurt the company's bottomline. And competition in the form of TELCO's Mint, Hyundai Motor's Santro, and Daewoo Motors' Matiz--all scheduled for launch later this year--will, for the first time, seriously challenge the dominant position of the country's largest manufacturer in the small car segment.

There is, however, one setback. BT learns that SMC intends to continue to keep the indigenisation of the gear-box--a persistent Maruti Udyog demand--on the backburner. SMC, apparently, feels that setting up a new gear-box unit would only make sense for a capacity of more than 5 lakh units per year. Given Maruti Udyog's capacity of 3.50 lakh cars per year, SMC has rejected the idea--till, at least, 2000, when Maruti Udyog's Gurgaon factory will cross the 5 lakh cars-per-annum threshold. That's unfortunate since Maruti Udyog is the country's 15th-largest importer--foreign exchange expenditure on raw materials in 1996-97: Rs 962 crore--largely thanks to gear-box imports.

Even though the deal is done, speed-breakers loom on the horizon. For one, the notoriously tractable Vajpayee Administration will face criticism from the Opposition in Parliament. There's also no saying how a new government might want to interpret--or even re-interpret--the deal. Then, there's the prickly issue of Maruti Udyog's future financing. While the GOI is still pushing for debt--against SMC's demand for equity--it will, sooner or later, have to face the issue of reducing its stake to 49 per cent in a "non-priority sector."

Of immediate concern is Bhaskarudu's lobbying against the deal. An obvious indication is the agitation launched by Maruti Udyog's trade union. Ever since he became the managing director, Bhaskarudu has assiduously wooed various lobbies--including the union. In February, 1998, the workers were given a wage-hike of 32 per cent. But the All India Trade Union Congress-led union fears that SMC may begin pruning the workforce, as it did in 1992, when its stake in Maruti Udyog rose from 40 to 50 per cent. Still, Maruti Udyog's troubles may have all but driven away into the sunset.

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