The Union Cabinet has approved the sale of its remaining 10 per cent government equity in Maruti Udyog Limited. When implemented, this decision will complete the transition of a 100 per cent government company to a pure private company.
This change coincides with the Indian automobile industry having attained international stature and production levels headed for two million in the next four years or so.
Export of cars from India are growing and India is likely to be a major producer of compact cars for the global marketplace.
The primary credit for this happy situation goes to the vision of then prime minister Indira Gandhi, who was determined to implement Sanjay Gandhi's dream of providing Indians with a small affordable car and to modernise the industry.
Soon after Sanjay died in 1980, the government established Maruti Udyog Limited. The company was required by an act of Parliament to modernise the Indian automobile industry, and produce large numbers of fuel-efficient cars since this was considered necessary for economic growth.
The establishment of a government company to produce cars was a departure from ideological dogma, as cars were treated as luxury goods and available resources were meant to be allocated for higher priority investments.
Maruti was also required to form a joint venture, with 40 per cent foreign equity, again a departure from policy as PSUs were all fully owned by the government. This decision to establish Maruti was criticised by many but events have proved that it has enormously benefited Indian industry, the national economy and government finances.
It proved almost impossible to find a partner who was willing to invest 40 per cent equity and who also had cars, which could be produced and sold in large numbers. Credit has to be given to O Suzuki, then president and CEO of Suzuki Motor Company, for taking the risk of investing 26 per cent in Maruti, since this project was considered to be highly political, the company was a PSU and the car market was very small. He was confident that he could work with the government and the Indian management.
Suzuki took personal interest to ensure that all inputs required for Maruti's success were provided. We could always approach him directly for help and he was always very supportive.
Maruti became very successful, and in 1987, Suzuki exercised its option to increase equity to 40 per cent. Suzuki developed trust and confidence in the Indian management, and also high regard for the IAS.
In 1992, when he had the option of nominating the MD, he did not bring in a Japanese person. He also decided to induct Jagdish Khattar, the present MD, into Maruti as a possible successor to me. Not many Japanese companies have shown the same confidence in Indians.
Indira Gandhi greatly facilitated Maruti's success by ensuring that the company was board-managed, and there was no interference. Her government gave the management of Maruti a free hand to select a partner, purchase plant and machinery, give out major contracts and appoint key personnel.
Even after her death, the ministry of heavy industry remained very supportive. Its representatives on the Board, till 1995, had a positive and business-like approach.
The finance and other ministries were always helpful. There was total trust between the government and Suzuki. This was why Suzuki, in 1991, asked for its equity to be increased to only to 50 per cent, though the laws permitted higher equity and the government was keen to invite FDI.
The road ahead became bumpy in 1995, three years after Maruti legally ceased to be a PSU, and despite the company continuing to perform outstandingly. The Department of Heavy Industry apparently lost faith in Suzuki and the company's management.
Various proposals, including the introduction of a new engine for the 800 cc car, modernising the paint shop, and deciding the site for further expansion of production, were delayed for many months as the government examined these matters.
Even exports were discouraged. This background led to the final breaking point over the appointment of my successor in August 1997. The government chose to nominate a person without consulting Suzuki - which led to Suzuki filing a petition for arbitration against the government. Fortunately, people changed and the dispute was amicably settled.
The consequence was that Suzuki's equity increased to 54 per cent, there was an IPO and the government equity reduced to 28 per cent. The government further diluted its holding to 10 per cent in 2005. The markets welcomed these moves and Maruti's share is now priced at 180 times its face value.
The component supply industry both facilitated and benefited from the growth of Maruti. As a policy, Maruti supported vendors in all possible ways, including finding technology partners, giving financial, technical and management support and bringing transparency in its dealings.
As a result, the component industry is now world class and highly competitive. It is acquiring companies abroad, and supplying components to many car manufacturers in the world.
Customer care was another plank of Maruti's approach to modernise the industry. Maruti devotes considerable resources to dealer upgradation and this is reflected in the numerous J D Power awards won by the company.
Success could never have been possible without the support and involvement of all employees. Based on inputs from Suzuki, Maruti changed many PSU practices and introduced systems to create a very productive and mutually beneficial relationship between the company and its workers.
Workers understood that their job security and future prosperity was linked to the success of Maruti. Management practiced what they preached and had good communication with workers, thereby building trust with them.
Productivity levels comparable with the global automobile industry were achieved, and total employee costs have always been near 2 per cent of the ex-factory price of cars.
It could be argued that this justifies the public sector concept as a means of efficient resource utilisation. However, a big difference was that Maruti was a joint venture and inputs from Suzuki resulted in creating a significantly different work culture.
In areas like factory layout and selection of equipment, production and quality control systems, kaizen and suggestion schemes, and the importance of training, Maruti followed Suzuki's advice with great benefit.
Good incentives could be introduced for increasing productivity and accountability was enforced. There was no adverse government interference in the critical growth years.
There was much greater stability of management in Maruti because of Suzuki's continuance as CEO from 1981 till today. Unfortunately, PSUs are unable to have the same operating environment.
