The Whim Called Maruti

Sometimes, indulging your child’s whims can set off a change in policies, writes Montek Singh Ahluwalia in Backstage. One such example was the establishment of Maruti Udyog Limited (MUL). It was established to realize Sanjay Gandhi’s dream of producing an affordable people’s car. The Planning Commission and the Finance Ministry opposed it – cars were a luxury item, why spend on that? Indira Gandhi approved nonetheless.

“(Unintentionally, MUL) helped change attitudes on many important aspects of industrial policy.”

 

First, it forced us to accept our limits. Yes, we could manufacture a car, but we were nowhere ready to design one. The hunt for a collaborator began.

“This also opened the door to a more relaxed approach to the import of foreign technology in other sectors.”

Why Suzuki was selected is amusing. No other Japanese car manufacturer was interested. Suzuki though was open to talks since they were still a motorcycle manufacturer and had just introduced a small car with 800 cc engine. The fact that their Tokyo offices were not air-conditioned was a positive as far as MUL boss, Krishnamurthy, was concerned (tongue-in-cheek) – they were more likely to be able to design for Indian conditions.

 

Second, Suzuki only wanted a licensing and supply agreement, but Krishnamurthy insisted that they have a 26% stake in the company. Only having their money invested, he felt, “would ensure Suzuki’s long-term interest in the joint venture”.

 

Third, the agreement was structured such that certain key decisions could only be made with the consent of the foreign partner. This was to protect the foreign (and later private) partner from “whimsical political interference”.

 

Fourth, Krishnamurthy insisted that MUL be granted government permission to produce 1 lakh cars per year, unlike the two existing car makers who were only allowed to make 20,000 cars per year. He felt it was only with such scale that MUL could make affordable cars. Until then, the government policy had been to divide the total units of any item that could be manufactured amongst multiple manufacturers. This practice was with the aim being to avoid a monopoly. The MUL experience began a change in the government’s attitude towards allowing manufacturers to create more items, since that created economies of scale.

 

Lastly, the success of MUL’s Maruti 800 went on to “usher a revolution in component development, producing an impressive supplier base that was later able to export auto components”.