The Hindu Business Line : Govt row with Suzuki `amicably' resolved

HANDING A COMPROMISE: Mr Shinzo Nakanishi, Chairman, Maruti, calling on Dr Adarsh Kishore, Secretary, Ministry of Heavy Industry, at his chamber in the Capital on Wednesday. - Ramesh Sharma

New Delhi , Sept. 22

IN sharp contrast to the protracted legal battles with its foreign partner earlier, the Government on Wednesday thrashed out an "amicable settlement" with Suzuki Motor Corporation (SMC) over the issue of fresh investments within a matter of just two hours.

Emerging from the meeting, representatives of the Government and SMC - the two partners of the joint venture Maruti Udyog Ltd (MUL) - told waiting newspersons that they had agreed to a ``major role'' for Maruti in the manufacturing facilities to be established in the country by the Japanese auto major as part of its Rs 1,000-crore investment announced last week in Tokyo.

Terming the settlement - in fact, the clearance of a misunderstanding - as a ``happy ending'' in the nation's interest, the Minister for Heavy Industry, Mr Santosh Mohan Dev, said that the new or the second car facility would be "under the flagship of Maruti Udyog".

The Minister was confident that the understanding reached with SMC today would not only take care of the interests of the existing shareholders in MUL, but also enhance and expand the reach of the Indian car company, which would market the product from its new ventures.

A final decision on the structure of new ventures would, however, be taken by the MUL board at its meeting on Thursday.

"We can have up to 70 per cent equity in the car venture. In the diesel engine unit, they (SMC) have offered us as much equity as we want but propriety demands that the decision be taken by the MUL board," Mr Dev said.

Mr Dev was also quick to point out that the new company, proposed to be named as Suzuki Maruti India, would not hurt the interests of Maruti Udyog. "Maruti has been insulated from any competition as the new company will manufacture only high-end cars," he said.

What is more, he said, "The new corporate entity will share common vendors, marketing and servicing network and R&D infrastructure of MUL, thus enhancing the value of Maruti."

Currently, Maruti's plant at Gurgaon (Haryana) has a manufacturing capacity of five lakh units and the proposed plant is coming up in nearby Manesar, also in the same State.

There was need for a new plant as Maruti's existing facility had reached saturation point in that it did not have the capacity to make even those cars, which would not be in direct competition to Maruti models.

The Suzuki announcement in Tokyo, it appears, had been misunderstood by the stock markets, which tended to beat down the price of the Maruti scrip. The Government stepped in to hold out the threat to SMC that it could not think of setting up a separate company without the `no objection certificate' from the Government in view of the clauses of Press Note No. 18. In effect, SMC's proposal would get stalled at the level of the Foreign Investment Promotion Board (FIPB) when placed before it for approval.

Also, as the Government proposes to totally exit from MUL some time next year, it would not like to see the price of the Maruti scrip declining as there would then be no investor interest.

The Government's threat appears to have worked as the SMC chief, Mr O. Suzuki, rushed his representatives to the Capital for discussions prior to the MUL board meeting.

The SMC representative, Mr Shinzo Nakanishi, who is also the Chairman of MUL, accompanied by the MUL Managing Director, Mr Jagdish Khattar, and two other officials, are believed to have expressed regrets over the ``confusion'' caused by the ``communication gap''.

As part of the settlement reached, Maruti would have a "significant" presence in the diesel engine venture. However, as per available indication, it would have up to 49 per cent equity as Suzuki was bringing in the latest technology, including that for gear box and foundry for production of engines, both domestic and exports.

``They (SMC officials) profusely apologised for their action which led to a dip in MUL scrip and market capitalisation of India's car market leader,'' Mr Dev said.