Maruti: The Untold Story

An inside account of how the interplay of personal and corporate interests resulted in civil war

According to the theory of chaos, a tiny episode in one corner of the globe can set off a chain of events that results in cataclysmic events in places far removed. Thus, a butterfly flapping its wings in Australia can set off wind movements that result eventually in a dust storm in Delhi.

One such flapping of wings took place in distant Japan in 1993-94, when Y Nakamura, a Suzuki Motors executive on deputation as director to Maruti Udyog, was promoted in his parent company to the rank of director. The powers that be felt at that time that Nakamura therefore deserved a leg up in Maruti, to the post of joint managing director.

 

But R C Bhargava, Marutis long-servicing managing director, thought he had a problem. Maruti was supposed to be a joint venture between two equal partners, the government and Suzuki. How then could a Japanese be elevated to the post of JMD, without an Indian also being similarly elevated?

So he decided to promote the seniormost Indian director on the Maruti board, RSSLN Bhaskarudu, as joint managing director. When Osamu Suzuki, chairman of Suzuki Motors, heard of the move, he was furious and remonstrated with Bhargava. Bhaskarudu was not good for the job, he argued. But Bhargava stuck to his guns, explained the need for evenhandedness, and Bhaskarudu was duly promoted.

But Suzuki made it clear rightaway, to Bhargava and to people in the government, that Bhaskarudu had reached as far as he could get, and the pool of talent in the company would have to be bigger to locate a successor to Bhargava who was to retire in a little over three years. Indeed, possible successors would have to be brought in quickly so that they could understood the car business, Maruti and Suzuki. In a fundamental sense, the die had been cast in 1984.

Bhargava now looked around for people who could be brought into Maruti at board level, and talked among others to an IAS officer, Ajay Vikram Singh, who declined. He then talked to Jagdish Khattar, another IAS officer who agreed and came in as marketing director.

Bhaskarudus friends and acolytes quickly saw a long-term game in Khattars induction. He was Bhargavas choice as successor, and Bhaskarudu would be slowly sidelined. Bhaskarudu, who saw himself as one of the architects of the Maruti factory and its efficient production systems, as well as the father of key cost-control measures that were preventing other car companies from entering the small car market, was both suspicious and incensed that anyone should scheme to deny him the top job that he deserved on the basis of his track record.

In a few months (and Suzuki certainly felt the timing was suspicious), articles began appearing in the newspapers about how Suzuki was creaming money off supplies to Maruti; how most of Suzukis profits came from the Maruti operation; how Suzuki was deliberately delaying indigenisation of key components like the gearbox, and so on.

Enter at this stage another key player in the unfolding drama: T R Prasad, a senior IAS officer who was till then in the Planning Commission and who was now secretary in the department of heavy industry. Prasad and Bhaskarudu were quickly on the same wavelength on Maruti-Suzuki issues, and sparks began to fly.

At the first board meeting of the Maruti board that the newly arrived Prasad attended and chaired, in March 1995, Suzuki blurted out that Indians were incapable of making the cars gearbox, indeed that they would not be able to make the gearbox for 20 years. Prasad was foxed, but kept his cool. He did not know that Suzuki had in fact offered a gearbox plant three years earlier, and Suzuki had presumably forgotten his earlier offer which was never taken up because the finance ministry did not clear the funding plan.

By one account, in the midst of a heated exchange Suzuki even threatened to shut down the Maruti plant. Prasad, now suitably incensed, retorted: Why dont you try?

So far it had been low level skirmishing through the press. Now battle had been joined openly. Suzuki repeated his threat to shut down the Maruti plant in a meeting with the then industry minister, K Karunakaran, who tried to placate him by saying: Were still talking, why do you want to talk of extreme steps?

Relations between Karunakaran and Suzuki soon soured. And a move was initiated to remove Khattar from the Maruti board altogether though he could continue as executive director in charge of marketing. His removal would make his candidature for the managing directors post that much more difficult. The file for the removal reached Karunakaran, but right upto the general elections of May 1996, he never signed the order.

When the new United Front government came into office in June 1996, almost the first thing that the new industry minister Murasoli Maran did was to remove not just Khattar but also another government nominee on the Maruti board, K Kumar. The charge against them was that though they were government nominees, they were not representing the government position in board meetings; instead they were siding with Suzuki. As executive directors, they were free to discharge their executive responsibilities, but on the board the government as shareholder would now be represented by government officials from the industry ministry. In effect, they would now do Prasads bidding.

Suzuki rushed post haste to Delhi, and quickly ate humble pie. By one account, he began a meeting with Maran with a litany of complaints, including the charge that the government was preventing Maruti from achieving its full potential. Prasad was present, and had done his homework. Youre lying, he told Suzuki bluntly, and spelt out for Maran how Maruti was exporting the Zen at a price that was substantially lower than the cost of the components being supplied by Suzuki for that car. In effect, Maruti was losing heavily on every car exported, while Suzuki was presumably making money.

Prasad explained further that all he proposed was that Maruti would cap its losses on such exports, at Rs 90 crore. No other anti-export measure was proposed. By one account, Suzuki who till then had been roaring like a tiger now began to purr like a cat.

Observers conjecture that Suzuki soon got the message that the government was quite willing to play hard ball and was on home turf. So, during what turned into a surprisingly cordial meeting with Maran, Suzuki climbed down from the rigid positions he had adopted in the past; he agreed to the funding of the expansion plan without the issue of fresh equity (therefore using internal resources and debt).

Meanwhile, suspicion that Suzuki and other Japanese companies had been creaming off Maruti had been growing in Udyog Bhavan. Ministry officials did detailed work and discovered, for instance, that full-scale global tendering for a new paint shop brought prices down sharply from what had been mentioned in the project report, and indeed lower than the price at which orders had been placed earlier. Hard negotiation also brought down the price of a new press shop. To the government camp, all this was more evidence that Suzuki had been creaming off Maruti.

Whether because of these discoveries and the government wanted to teach Suzuki a lesson, or because it wanted to get out of cars altogether, the government now began making some daring moves without any public announcement.

Within three months of the great Suzuki climbdown, around October 1996, the government and some officers of Maruti (including Bhaskarudu) decided to open talks with General Motors, for selling the 50 per cent government stake to GM. Contact was established through the president of GM International, Lou Hughes, who is based in Switzerland. He came to India along with GMs Asia head, who is based in Singapore, and some informal talks were held.

Contact with GM was established through Delphi, GMs components subsidiary, with whom Bhaskarudu had dealings.

After listening to the government proposal, GM said that they could go ahead only if they had Suzukis support. GM and Suzuki are partners in other countries, GM has a small stake in Suzuki (about 5 per cent), and GM therefore wrote to Suzuki informing them of what had transpired. Suzukis answer is not known, but the matter was then dropped.

Pro-Suzuki insiders say that GM would in fact have been an excellent partner for Suzuki, since the two know each other, and they could have worked together in India as they do in Canada and will in Europe soon (joint production planned), as GM also markets Suzuki cars in the US.

In another three months, finance minister P Chidambaram was winging his way to Japan. The Indian ambassador in Tokyo, Kuldip Sahdev, did the usual thing: he arranged meetings to which Osamu Suzuki was also invited. Chidambaram got to talking to Suzuki about Japanese investment in India, and Suzuki seems to have said that he was willing to invest large sums in India, but he should have total management control of Maruti. Or something to this effect.

Perhaps in his eagerness to get Japanese investment moving, Chidambaram presumably activated government wheels on his return to Delhi, and before long the cabinet secretary, TSR Subramaniam, had started informal soundings on what could be done about the government possibly selling its stake to Suzuki, or in the open market.

But Suzuki may have spoken to the wrong man, because the minister dealing with Maruti is Murasoli Maran, whose rivalry with Chidambaram is no secret. Maran threw a fit when he learnt about the moves afoot, and the move was quickly dropped.

At around this time, Suzuki had come to India and met the then prime minister, H D Deve Gowda. Gowda seems to have given the impression that he was not averse to the idea of the government selling its stake. This was the time when Suzuki seemed about to convert Julys defeat into sensational victory, but Maran (and behind him, Prasad) stood in the way.

By the time Deve Gowda fell and the Gujral government came in, thoughts of equity sell-offs had vanished, and all attention was now focused on who would succeed Bhargava as managing director in August. And the lobbying became intense. Vendors are believed to have taken up cudgels on behalf of Bhaskarudu (who had been in charge of vendor development). Bhaskarudu himself sought (or got) the support of quite a few southern politicians.

Suzuki for its part seems to have approached a close relative of the prime minister, a relative moreover who had begun to acquire a reputation in Delhi circles as a latterday Kanti Desai. But the phone calls came in thick and fast to Gujral, repeatedly suggesting Bhaskarudus name. So much so that an exasperated Gujral is believed to have remarked: Who is this Bhaskarudu and why is he so important?

Suzuki had thought it was on the inside track, since it had the Gujral relative as an ally, but it didnt work. Gujral took a different view (at least partially disproving widely held beliefs about his relatives interest or influence in government matters), and Bhaskarudu became managing director. Then the government went a step further, and claimed the chairmans post. After that, it was war.