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Business Commentary/Dilip Thakore

Politicians, bureaucrats have contributed little to Maruti's success

What a shambles! This would be the reaction of any business literate person to the bitter boardroom and courtroom battle in Maruti Udyog Limited, India’s largest and most successful car manufacturing company.

The celebrations within Union government circles over the Delhi high court's refusal to stay the appointment of R S S L N Bhaskarudu as MUL managing director are likely to prove short-lived. So is New Delhi’s jubilation about its triumph at the company’s subsequent annual general meeting held on September 22 when it also manoeuvred the appointment of its nominee as chairman of the Indo-Japanese company in the teeth of opposition from the Suzuki Motor Company.

Celebrations within the ranks of the invariably business illiterate politicians and bureaucrats are premature because the issue of Bhaskarudu’s appointment is subject to a final decision by the International Court of Arbitration. This court, promoted by the Paris-based International Chamber of Commerce, is likely to take a less legalistic view and uphold SMC's contention that even if the Union government had the right to appoint MUL's managing director, the appointment of a mutually acceptable chief executive is implicit in a joint venture partnership agreement. The fast-track arbitration by the ICA is expected to be completed within 60 days.

Yet, whatever the outcome of the ICA decision, there is a certain poignancy about the descent into a new period of boardroom battles of India's only world class car manufacturing company. It is pertinent to note that MUL manufactured almost half a million automobiles and chalked up a sales turnover of over Rs 80 billion ($2.2 billion) in the past fiscal year 1996-97.

Originally the fraudulent brainchild of the late Sanjay Gandhi, this company was rescued from a fate worse than bankruptcy by the now disgraced techo-bureaucrat V Krishnamurthy who persuaded SMC to purchase a stake in the company and more importantly, to provide contemporary small car manufacturing technology and production processes to MUL. Given the high-level of Japanese commitment to the project, the Maruti 800 cc small car was an instant hit with a public long-burdened with passenger cars manufactured with antiquated decades-old technology. Currently, MUL commands an 80 per cent share of the national market for passenger cars.

Typical of the general government attitude of ingratitude, Krishnamurthy is languishing in obscurity with unsubstantiated charges of corruption against him. Now it is SMC’s turn. The distasteful face-off in MUL boardroom and the intemperate remarks of Union Industry Minister Murasoli Maran to the effect that SMC was free to quit MUL as there are many other foreign car manufacturers ready to step into its shoes, raises the larger question of whether the Union government should be in the consumer durables business at all.

Quite obviously the government has contributed precious little to MUL by way of technology or management systems. At best its contribution has been by way of facilitating the clearance of cumbersome and time-consuming government procedures. Consequently, its proper role in MUL is that of a portfolio investor content with the handsome dividends the company pays out.

Yet, right from the time MUL commenced operations, upstart politicians with little awareness of the fundamentals of doing business have been interfering with the company. R C Bhargava, a former bureaucrat who was appointed managing director after Krishnamurthy's exit from the company, gradually metamorphosed into a SMC representative on the board of the company, battling to save it from the whims and caprices of Sunday politicians and bureaucrats.

When he resisted then industry minister K Karunakaran’s hare-brained scheme to locate an MUL factory site in the minister’s home state of Kerala, Bhargava too had corruption charges levelled against him. It is a measure of Bhargava’s commitment to MUL that he served a decade-long stint as chief executive of the company despite the gravest provocation and harassment from Union government representatives.

Of late, the rift between New Delhi and SMC has widened over the issue of funding the expansion and upgradation of MUL’s manufacturing capacity. Confronted with the prospect of intense competition from several automobile companies (including TELCO, which has bested the Japanese in the light commercial vehicle manufacturing sector) poised to enter the small car manufacturing sector, MUL’s management has drawn up a Rs 60 billion capacity expansion plan.

The cash-strapped Union government is opposed to a proposed rights issue and is in favour of the company resorting to borrowing, which is likely to push up costs and blunt MUL’s price-competitive edge. SMC’s opposition to Bhaskarudu’s appointment as managing director is rooted in his consistent support of the government line even if it is inimical to the company’s interests.

The pitiful descent of MUL into squabbling chaos and the sad state of most public sector enterprises clearly proves that the government needs to limit participation in businesses. In this particular instance, the Union government and especially Maran have displayed shocking insensitivity, which is certain to adversely affect the flow of foreign investment into India.

Yet, the silver lining to the MUL imbroglio is that it offers conclusive evidence that the Union and state governments conspicuously lack the institution-building capability which is the prerequisite of success in contemporary business. The only good that can flow from the boardroom in MUL is that is may accelerate the nation’s moribund privatisation drive.

Dilip Thakore