June 22, 1998

Having made peace with Suzuki, Sikander Bakht should privatise Maruti.

Jairam Ramesh

How times change. A year ago, Murasoli Maran was being hailed by the BJP as the champion of swadeshi and being applauded for showing the Japanese that Indians could not be taken for a ride. Today, the BJP has turned around completely and made peace with Suzuki. Maran and his friends are crying foul but the prime minister, Jaswant Singh and Sikandar Bakht must be congratulated for arriving at an out-of-court settlement. Undoubtedly, Pokhran II has imparted an urgency to building bridges with Japan. But from the day he took over, Bakht had signalled his desire for a quick solution.

Actually, Maran's behaviour, even granting for Suzuki's insensitivity and arrogance, was completely uncharacteristic. As a minister, he was a bold liberaliser and reformer. All his actions, other than in the Suzuki episode, bear this out. Why he took on Suzuki in the manner he did remains a mystery.

One explanation could be that his hands were tied by decisions taken by his predecessor, who had damned the man now designated to take over as managing director (MD) of Maruti in January 2000. Another explanation may be that Maran was a prisoner of his coalition partners who wanted a particular individual, unacceptable to Suzuki, as MD. Yet another reason could be that Suzuki's initial choice for the post of Maruti's chairman was a red rag to many MPs belonging to the United Front.

All this may well be true. But it does not explain the virulence of the antagonism between Maran and Suzuki or Maran's continued refusal to seek a compromise.

Maruti has transformed Indian industry. But it has also enjoyed special privileges not given to other companies. Soon after taking over as industry minister in June 1996, Maran found himself in confrontation with Suzuki. Facts supported Maran. He had four substantive charges against Suzuki. First, that Suzuki was not introducing new models fast enough and was content in raking in royalties from the 800 cc model. Second, that even after 10 years of collaboration, Suzuki had not transferred the technology for making gearboxes.

Third, Suzuki was inflating project costs. As an example, Maruti's paint shop and presses cost anywhere between 25 and 40 per cent more than what may be reasonably expected through competitive bidding. Fourth, Maruti was incurring a loss of over $ 2,000 on every Zen exported and, even then, Suzuki was selling it under a different brand name: Alto.

Expectedly, Suzuki denied the charges. Next, Maruti's expansion got stuck, with Suzuki wanting equity financing and Maran insisting on the debt route. As it turns out, the expansion will cost less than what Suzuki estimated and is being financed through neither debt nor equity but through internal resources.

Beginning November 1996, following the then finance minister's visit to Japan, Maran began to seriously consider the possibility of the government selling off its stake. More than once he expressed the view that the government should not be in the business of making cars and that without complete disinvestment, Maruti would be at a competitive disadvantage vis-à-vis its South Korean and other rivals.

However, when it came to the crunch, Maran was naturally very cautious. In the ruling coalition of the day, only the finance minister and prime minister supported him. Informal talks were initiated with Suzuki for a mutually beneficial deal: for example, Suzuki to invest in a gearbox plant and new car factory in return for the government selling its equity. Sometime in February 1997, it was decided to pursue the privatisation option. But soon H.D. Deve Gowda fell and this proposal was buried.

Finally, all hell broke loose in August 1997 when Maran decided to take a tough stand on the appointment of a new MD. His stand was the joint venture (JV) agreement gave an absolute right to each of the two partners to appoint an MD by turn. Since in 1997 it was India's turn, he was only exercising that right. Suzuki's stand was the agreement provided for consultation and concurrence before the appointment of an MD.

Finding Maran unrelenting, Suzuki took India to the International Court of Arbitration, where hearings were expected to commence on July 8.

Since the sorry saga is over, it is time to think ahead. For one, Maran's substantive criticism of Suzuki remains valid. More important, now that the finance minister has said privatisation is on the agenda, Maruti should be the first candidate. The government's equity is 49.3 per cent. This could be sold to Suzuki or to the public.

The government's investment in Maruti is around Rs 65 crore. A few months ago, it was estimated the Government could rake in some Rs 6,000 crore by selling its stake. This is a fantastic return by any standards. In October 1997, the chairman of General Motors had indicated as much to the then prime minister.

Since he has demonstrated that he carries no baggage, Bakht should now appoint a financial adviser or get the Disinvestment Commission to chart out the road map for the privatisation of Maruti. He will earn himself a place in the history books.

The author is secretary, Economic Affairs Department, AICC

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