Driving with circumspection

THE SALE OF any well-run public sector unit will cause plenty of excitement and controversy. Maruti's cannot be expected to be smooth, no matter how considered the Government's decision has been. Since 1992 when the disinvestment programme first took off there have been no tangible achievements to speak of from the Government's side. It is easy to blame bureaucratic delays and political bickering but it is seldom realised that each candidate for disinvestment has certain unique features and therefore requires a tailor-made approach. Otherwise the objectives of the exercise will be counter-productive. Another major point of criticism arising from the delays has to do with the valuations, the sale proceeds. As will be asked stridently in Maruti's case, would the sale have yielded much more had the Government moved faster?

A combination of circumstances makes the Maruti sale especially noteworthy. The company, which gave the Indian consumer the first modern automobile way back in the mid-1980s, still maintains its traditional strengths in the small car segment and sells nearly 60 out of 100 cars in the country. Even with the advent of serious competition in the late 1990s, the company has managed to hold its own although the transition from a monopolist to a dominant player has not been smooth. Forced to protect its flanks, Maruti has responded, albeit with some delay, by introducing new models in every major segment and investing heavily in new dealerships and ancillaries. After successfully tackling a serious industrial relations dispute, Maruti bounced back in the race for numbers, outselling its nearest competitor more than 3 to 1 in January. However, there is an inevitable financial tag attached to those success stories: in all probability, the company which has been in the red for most of this year will report an unprecedented loss when its accounts are drawn up.

The above will be in sharp focus when the company's sale programme gathers momentum. Two other crucial issues will also matter. The first is of course Maruti's unique ownership pattern, an equal partnership between the Government of India and the Suzuki Motor Company (SMC) of Japan. A 1992 agreement requires their mutual consent before any tinkering with the equity structure is attempted. That makes it impossible for any of Suzuki's international competitors to buy out the government stake without the SMC's approval. Almost all global auto majors say that they will bid for the Government's stake but even General Motors, the world's number one car company which has been buying into the SMC (among others) and making a strong bid for leadership of the promising Asian auto market, cannot short- circuit the process. Whether that would dampen the interest in Maruti remains to be seen.

Secondly, Maruti unlike most other well-run government companies is not quoted on the exchanges. Hence there are no market quotations to guide its sale. In that context, the two-step sale contemplated is realistic although the first stage divestment to financial institutions will be criticised. On the positive side, it will help in discovering a price for Maruti, a benchmark, for the much bigger sale of government holding that will follow. Not one but three international merchant banks will help in that process, a concession surely to the special requirements of the disinvestment process. But as much as the financial details the technology aspects of the transaction will matter. As of now the only certainty about Maruti's future is that Suzuki will continue calling the shots even if it does not become the dominant owner. Among its other goals, the sell-off programme has to ensure that other stakeholders including the Indian car users keep getting their dues.

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