The year liberalization celebrated its silver anniversary

The year liberalization celebrated its silver anniversary
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First Published: Fri, Jan 02 2009. 05 30 AM IST

Illustration: Jayachandran / Mint
Illustration: Jayachandran / Mint
Updated: Mon, Jan 05 2009. 04 00 PM IST
Two events that had far-reaching consequences occurred in 1983: On 25 June, against all odds, India won the cricket world cup; and on 14 December, a 796cc car, called Maruti, rolled out of its factory in Gurgaon. This year marks the 25th anniversary of both events.
Both were audacious efforts. One laid the foundation for India’s development as a key player in international cricket; the other stoked the middle-class consumer dream that would eventually power the country’s transformation into a trillion-dollar economy.
And, to think they almost didn’t happen.
Captain Kapil Dev rescued India after a tottering team had lost five batsmen for a mere 16 runs in a league encounter. Later, lesser-known members of the team logged stunning performances to upset first England in the semi-final, and then, reigning world champions West Indies.
The Maruti story was equally, if not more, compelling. What started out in 1971 as a pet project of Sanjay Gandhi, the political heir apparent of then prime minister Indira Gandhi, went bankrupt and was moved for liquidation in 1977. For three years it became a source of political conflict between the ruling Janata Party and a deposed Indira Gandhi. After her return to power in 1980, she revived the project. The assets of the erstwhile company, including the land in Gurgaon, were acquired under the Maruti Limited (Acquisition and Transfer of Undertakings) Act, 1980.
14 December: Maruti’s silver anniversary. 7.44 million Maruti vehicles have been produced since 1983.
In 1981, Maruti Udyog Ltd (MUL), a 100% government owned company, was set up. It was the era of industrial licensing—though the first signals of its dismantling were apparent—and any company needed government permission to manufacture (being a public sector start-up helped).
Over the next two years it came close, but didn’t quite manage to strike an alliance. Lost opportunities included partnerships with Renault, Volkswagen, Daihatsu and Suzuki.
In the case of the last, a second opportunity emerged almost by chance. In February 1982, a director of Suzuki Motor Corporation who was returning from a visit to a TVS plant in Chennai, chanced upon newspaper reports—ironically, when the deal was falling apart—on a likely tie-up between its competitor Daihatsu and MUL. That’s how, several meetings later, MUL and Suzuki became partners.
Around the same time, MUL undertook a consumer survey. “It was the first of its kind for a public sector company. In those days, the customer did not matter. The survey told us that the customer needed a fuel-efficient and low-cost car,” recalls R.C. Bhargava, one of the founding members of MUL’s management team and its current chairman.
What unfolded was almost sacrilegious for existing economic policy. It was a time when foreign collaborations were frowned upon; Indira Gandhi had nationalized banks a little more than a decade earlier. Yet, she agreed to allow a 40% foreign direct investment, or FDI, in the venture.
“Mrs (Indira) Gandhi was very pragmatic,” recalls V. Krishnamurthy, the founding chairman of MUL and present chairman of the National Manufacturing Competitiveness Council. This collaboration with a foreign name was a first—at a time when this was on the negative list of foreign direct investment.
The government did much more. It lowered excise duties (it claimed Maruti was energy efficient), and customs tariffs so that the company could maintain its inaugural price of Rs47,500.
“It was the first time that the government looked at an investment with such flexibility. Our strategy on pricing was to peg it at 15 times the average (starting) salary of an executive, which then was Rs3,000. My slogan was that so long as the public saw value for money there would be no dearth of demand in this country,” says Krishnamurthy.
Illustration: Jayachandran / Mint
The former chairman says he wanted to develop a plant with a production capacity of 250,000 cars a year—more than five times the cars that were being sold in the country at that point of time! But not too many people were willing to bet on that number and eventually the company scaled down its capacity to 100,000—with the first phase restricted to 40,000 cars a year.
It was the first step of liberalization—a process that accelerated after Rajiv Gandhi took over as prime minister in 1984, and then dipped briefly before being dramatically revived in 1991 following an unprecedented economic crisis.
Along the way, MUL created an entire generation of entrepreneurs. Vendors were the key to indigenizing a car that was initially 97% imported. “Maruti told us that we had to supply components and not the raw products. This culture started with them,” recalls 72-year old K.R. Singh, then director of Trinity India Ltd and now an adviser to the company.
The company, which was set up in 1974 as Trinity Die Forgers Ltd, used to supply raw forgings to several automobile manufacturers in the country, who would then machine them into components. Life changed dramatically for the Pune-based firm in 1986 after it began supplying front wheel hubs—part of the front axle of the car—to MUL.
They began modestly, supplying components to fit 2,000 cars a month. However, as MUL expanded, adding new models such as the Omni, Gypsy and Esteem to its oeuvre, Trinity’s order book grew rapidly: It now supplies for about 25,000 automobiles a month. The expertise the company gained opened up entirely new opportunities and today Trinity supplies more components to Ford—for 36,000 cars a month—worldwide than to MUL.
No doubt a transformative story, compelling as none other in India’s modern economic history.
Anil Padmanabhan is chief of bureau, Delhi, Mint
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First Published: Fri, Jan 02 2009. 05 30 AM IST