Maruti8217;s strange alchemy

I feel much the same when I look at most of our problems. Whether it is Kashmir, or lack of infrastructure, or the utter neglect of population control measures, grave issues never got the attention they deserved. Or, worse, the seeds of potential conflict were planted almost deliberately.

The whole messy situation at Maruti Udyog Limited is a case in point. It was a pig8217;s breakfast put on the table by Congress chefs for reasons that are still unexplained. Today, opposition parties accuse Sikander Bakht of organising aquot;sell-outquot;, but they ignore the fact that it wasn8217;t he who gave Suzuki the gates to the castle in the first place.

The quot;sell-outquot; 8212; in the literal as well as the metaphorical sense 8212; came in 1992, when the Narasimha Rao government conceded parity to Suzuki. The original agreement with Suzuki gave the Japanese only 26 per cent of the equity, with an option to raise it to 40 per cent later. Suzuki exercised this option in 1988. But a 50 per cent stake was never on the cards.

One of the first hints that Suzuki was contemplating equality came in a letter from R.C. Bhargava, then Chairman-cum-Managing Director of Maruti, to Suresh Mathur, Secretary, Department of Industrial Development, Ministry of Industry. There are a couple of points that should be made on this Dear Suresh8217; letter, dated March 15, 1991, and superscribed quot;SECRETquot;.

Let me quote from this document. quot;During discussions with the President of Suzuki Motor Corporation last week, he indicated that Suzuki would like to maintain its equity at 40per cent as at present. Therefore, of the proposed new equity issue 40 per cent would be bought by Suzuki.quot; So far so good, but the main course was still to come.

quot;In addition,quot; Bhargava continues, quot;he indicated his desire to buy all the additional equity to be issued, if government would permit this. I indicated to him that we were expecting to sell at a premium of Rs 400 on a share of face value of Rs 100. That is, a Rs 100 share would be sold at Rs 500. Mr Suzuki was willing to buy at this price.quot;

Please note the price that Suzuki agreed to pay in March 1991 8212; Rs 500 per share. It gains significance in the light of what was to follow.

There was no immediate reaction to Bhargava8217;s letter for the simple reason that India didn8217;t really have a government in March 1991. Rajiv Gandhi had toppled Chandra Shekhar with the help of two Haryana constables and elections were still weeks away. But something was clearly going on behind the scenes.

In 1992, Narasimha Rao was in the saddle. And it was hisgovernment that gifted parity in Maruti Udyog Limited to the Japanese outfit. I use the word quot;giftedquot; advisedly 8212; Suzuki got away with paying only Rs 269 per share as against their own offer of Rs 500 one year earlier!

I note without comment that this sad episode was preceded by a visit to Japan by Rao. For the record, again without drawing any inference, the now-famous Prabhakara Rao, son of the then prime minister, had sought Japanese aid in an electronics venture that is now defunct.

But the price at which control of Maruti was conceded is only one part of the picture. There is also the author of that interesting letter to be considered. R.C. Bhargava was a nominee of the Government of India when he became Managing Dire-ctor of Maruti. In 1990, he received the additional honorific of Chairman, again the gift of the government. But in 1992, when he was reappointed as Managing Director, it was Suzuki that Bhargava had to thank.

The point is that this wasn8217;t the only sign of a mutual admiration societybetween Bhargava and the Japanese manufacturer. Suzuki also appointed him as a consultant for business matters in South Asia other than India. There was a definite conflict of interest between his role as MD of Maruti and his job as a consultant to Suzuki. Yet neither he nor the Japanese bothered to inform the Government of India about this curious arrangement.

It is true that Bhargava wasn8217;t representing the government when he took up the consultancy. He was Suzuki8217;s choice as MD. It is also true that he retired from the IAS in 1994. But the question of a conflict of interest remains. To put it bluntly, if Maruti Udyog8217;s interests clashed with those of the Suzuki Motor Corporation, where did Bhargava8217;s loyalties lie?

Maruti is still a joint venture, not a subsidiary of Suzuki. The government still has 50 per cent of the equity and still has its nominees on the board. But what happens if other such conflicts of interest arise?

That is not just a hypothetical question. Jagdish Khattar, who has beenpencilled in to take over as MD as of the year 2000, was once an IAS officer and a nominee of the government on the Maruti Board. Dr K. Kumar is another such nominee who switched over.

I have always found factories a bit magical 8212; in go the raw materials, out come the finished products. But Maruti8217;s alchemy seems to work as much on men as on machines. In go the government8217;s nominees, out come Suzuki8217;s partisans!

If you ask me, the government had no business getting into automobile manufacture in the first place. Nor into running hotels and airlines, for that matter. I am all for privatisation, but there should be a degree of transparency in these matters. Privatisation definitely doesn8217;t mean selling the family silver at half the price quoted by the buyer himself!

Finally, how did Suzuki react after the government of India buried the hatchet? With a hike in imported components exported by Suzuki of Japan of a whopping 80 per cent. And if that wasn8217;t enough, the new masters arranged for a reductionin Indian components by five per cent!

How did we get into this mess? Ask Narasimha Rao, whose regime ensured the surrender of parity to the Japanese. Need I add that Rao was his own industry minister at the time in question? Yes, there was a quot;sell-outquot;, but in 1992, not 1998.