The renewal of the royalty agreement between Maruti Udyog Ltd and Suzuki Motor Co has hit a roadblock in the industry ministry with the proposal yet to muster the vital nod from the Secretariat for Industrial Assistance.
The SIA, under the BJP-led government, has decided to make the renewal of the royalty payments to Suzuki Motor for the existing car models conditional to a firm commitment by the Japanese partner to transfer technology for newer models, as well as for the proposed gear box project, to the Indian company.
Sources said that the royalty renewal agreement has been kept in abeyance at the SIA as there is reluctance within the government to allow continued royalty payments to Suzuki for old technology and old models in absence of a definitive decision by the Japanese car maker to transfer technology for newer models to the Indian company.
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With the industry ministry currently busy scrutinising the details of the project proposal submitted by Suzuki Motor for a gear box project as well as the plans to introduce new models in the country to take on emerging competition, the SIA decision is expected to take more time.
The recent development is a fallout of the BJP-led government's move to identify technology transfer as one of the key factors for allowing foreign investment into the country.
The continued delay by the SIA to approve the royalty agreement between Maruti and Suzuki is despite the recommendation by the board of directors of Maruti Udyog to renew the royalty agreement with effect from April 1, 1997.
The Maruti board decision was taken at its meeting on February 05 this year.
However, sources disclosed that even at the February board meeting there were differences in opinion between the government and Suzuki nominees on the issue of okaying the royalty renewal agreement without obtaining affirm plan of introduction of newer models by Suzuki.
Company sources say that the decision to finalise the exact specifications of newer models is coming dangerously close to the deadline for placing orders for dyes, moulds and other equipment for the new plant that is slated to begin commercial production by 1999.
Without firming up the plans for newer models not much substantial work can progress on the third plant which is expected to add the much needed capacity to Maruti's total manufacturing volumes, disclose company insiders.
The royalty issue has been one of the contentious areas of dispute between the government and Suzuki, the two equal partners in Maruti who have landed in the international court of arbitration over the dispute of appointment of the current managing director.
The royalty payments to Suzuki was stopped by Maruti from April 01 last year after the company failed to review the contract in time as required in the seven year contract which took effect from April 1994. The royalty agreement was for Maruti 800 and the Omni models.