Govt to block Suzuki plans

Ministry tells the FIPB not to clear Suzuki's new investment proposals.

The Indian government and Suzuki Motor Corporation are on a collision course, with the ministry of heavy industries questioning the investments announced by Suzuki in India a week ago.

Accusing Suzuki of violating the joint venture agreement on Maruti Udyog, the ministry today wrote to the Foreign Investment Promotion Board (FIPB), saying that any Suzuki proposal for an investment in these ventures should not be cleared as the government's concurrence, mandatory under existing norms (Press Note 18), has not been sought.

Minister of State for Heavy Industries Santosh Mohan Deb said Suzuki's announcement, made without taking the government into confidence, was tantamount to breach of "understanding" of the agreement.

"This has caused a colossal loss to shareholders in terms of fall in Maruti share prices," said an agitated Dev.

A senior official from the ministry agreed. "Suzuki should have taken the other shareholders of Maruti into confidence," the official told Business Standard.

The Japanese company had announced that it would put up a diesel engine plant with an investment of nine billion yen (about Rs 427 crore) as well as a car assembly unit in India.

Though Suzuki chief Osamu Suzuki had said that the assembly plant would be put up by a joint venture between itself and Maruti, the stock markets perceived that Suzuki would set up its own marketing network in the country and that this would hamper Maruti's prospects.

As a result, the company lost over Rs 300 crore in market capitalisation within two days of trading after the announcement was made.

The initiatives taken by the government are aimed at guarding Maruti against such a possibility by making it a partner in the two ventures, the ministry said.

In its communication to the FIPB, the ministry cited the two board meetings held on March 24 and May 18 this year, where a decision was taken that all fresh investments will be undertaken by Suzuki with Maruti as a partner. "Fresh investments made without Maruti's involvement will violate the revised joint venture agreement of May 2002," the official added.

The ministry believes that Maruti is capable of making sizeable investments in both the proposed projects. "Maruti today has a cash surplus of Rs 2,000 crore, which effectively means that the company is capable of participating in the expansion plans," the official pointed out.

To salvage the situation, Suzuki is sending a high-level delegation to meet ministry officials on Wednesday. It will also try to meet Deb.

The showdown comes seven years after the spat between the government and Suzuki in August 1997 over the government's unilateral decision to appoint R.S.S.L.N. Bhaskarudu as Maruti's managing director.

The company had also taken the Indian government to the International Court of Justice. Murasoli Maran, the then industry minister, had retaliated by saying his government was looking for a new partner for Maruti.

A compromise was reached in 1998 when Bhaskarudu's term was cut short till December 2000, and Jagdish Khattar was named his successor.