The Hindu Business Line : Right move

It is just as well that the curtains are at last coming down on Government's direct interest in the automobile industry with the Group of Ministers approving the price bids from financial institutions for the Centre's residual stake in Maruti Udyog. A financial stake in an enterprise presents to the government a classic problem of conflict of interest given its principal role — of framing public policies for the industry to which the enterprise belongs. Even where its decisions have been arrived at by an objective evaluation of policy options, there will always be lingering doubts in the minds of private players that the Government's actions have been dictated more by its ownership interests than considerations of promoting sustainable growth. Did the government, for instance, decide back in the 1980s, to introduce concessional rate of Customs duty on components for fuel-efficient cars because it wanted to load the cost structure in favour of Maruti vis-a-vis other private players or out of genuine considerations of conserving petroleum resources? Some private players were in no doubt it was the former.

That apart, the present ownership structure with the government's stake reduced to a little over 10 per cent offers compelling logic for an early exit. Such a level of ownership confers on the government neither the capacity to influence the company's course of strategic action nor allows it to unlock value from its original investment. Indeed, it is safe to say that its ownership stake lost all relevance ever since it allowed Suzuki, its joint venture partner, to raise its stake to 49 per cent that soon grew to be a 50:50 joint venture. The introduction of an employee welfare trust as the third shareholder in the early 1990s reduced the government to a minority. At the best of times, a 51:49 relationship in a joint venture is never an easy one. For a Government buffeted as it is by other concerns of the state, a minority stake in an industrial venture is a distraction it can do without.

The country's automobile industry today is vastly different from what it was in the early 1980s, when Suzuki drove in. Both in terms of variety and quality the industry compares favourably with its counterpart in advanced economies. The auto-component industry too has made rapid strides. The global auto industry thinks India could well emerge a centre of vehicle design and prototype development. The question whether it is any business of the Government to be in business may not lend itself to an easy answer. But if ever it is possible for the Government to say that its mission now stands accomplished and that it is time to move on, Maruti must surely be it.

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