On 14 December 1983, a little white car, festooned with marigold garlands, drove out from a car factory located in a dusty town called Gurgaon, just outside the borders of Delhi and in the state of Haryana. At the wheel of India’s first small car—the iconic Maruti 800—was a proud Indian Airlines employee, Harpal Singh, who was taking it towards his Green Park home in south Delhi.
Hours before, Prime Minister Indira Gandhi had, just before handing the keys of the car to Singh, made a short, emotion-laden speech. ‘Perhaps, you living across the oceans,’ she said, addressing the executives of Japan’s Suzuki Motor Company, which had partnered with Maruti Udyog Ltd to produce the people’s car, ‘do not know the long history of vilification, falsehood, accusations and allegations that we had to face over it.’ With tears in her eyes, she described the long hours her late son Sanjay spent every day, in a hot and dusty workshop, trying to develop an Indian small car, and translate his dream into reality. In between, her voice would crack, and she would sip water and dry her eyes.
In saying that she was summing up the long and tortuous history of India’s first small car project.
Cars were Sanjay’s first passion, one that led the son of India’s Prime Minister to apprentice with the British car company Rolls-Royce Motors for three years from 1964 to 1967. On his return, he was fired with the idea of manufacturing a ‘people’s car’.
For the India of that time, strongly steeped in socialism and centralized planning, it was both a valid and an impossible dream. Valid, because motorization was essential for modernizing Indian industry and giving an impetus for economic growth. Impossible, because allocating scarce resources, including foreign currency, for developing private transport vehicles went against the deep-rooted beliefs of socialist planners, who did not recognize the fallout effects of a vibrant car industry.
At that time there were just three companies manufacturing passenger cars—Hindustan Motors in Kolkata (Ambassador), Premier Automobiles in Mumbai (Premier Padmini, better known in those days as Fiat after the collaboration with Italy’s Fiat company) and Standard Motor Products India in Chennai (Standard Herald). The demand for cars far outstripped supply and in 1968, the waiting list for cars was as much as 82,000,1 which meant that people had to wait for more than two years to get a car. The Premier Padmini was the preferred car, with a waiting time of up to five years. Bureaucrats used their influence to get special quotas to buy the car, use it for a few years and then sell it at a profit! The prices of cars were high by the standards of those days (in the Rs. 14,000 to Rs. 16,000 range in 1968), setting off demands from members of Parliament for nationalization of the three car companies! The logic perhaps was that in a government company, profit was not important and so cars could be sold cheaper. Quality was pathetic, prompting the government to appoint a Motor Car Quality Enquiry Committee in 1967.
Government policy had a lot to do with the condition of the industry. The main cause of poor quality was the lack of competition, and a huge gap between demand and supply. Manufacturers of cars, as well as virtually any other product, could sell whatever they could produce. Quality and customer service were irrelevant for ensuring that products were sold profitably, and often at a premium. A persistent shortage meant that the dealers could charge a premium—paid in cash—on the cars. The distribution of this unaccounted and untaxed money created a deep vested incentive for shortages to persist. While little was done by the government to put pressure on the manufacturers to increase output, reliance was placed on administrative orders to control prices.
The automobile manufacturing industry in India really dates back to 1948. Till then cars were only being assembled here, with G. Mackenzie & Co. making its debut in 1926 and General Motors India kicking off operations in 1928.2 In 1953, the government took the first step towards making the country self-sufficient in automobiles. This was part of the government’s overall approach towards industrial self-reliance through import substitution. It accepted the recommendations of a Tariff Commission report on the development and protection of the automobile industry. The report said that in order to lower the costs of production, manufacturing should be concentrated in a few firms, which would execute a localization programme according to an approved time schedule. Assemblers who did not submit their manufacturing programmes to the government were to terminate their activities.3 That saw the exit of foreign car assemblers.
The three domestic manufacturers who remained—Hindustan Motors, Premier Automobiles and Standard Motor—had to get their manufacturing programmes approved by the government.4 They were given a phased manufacturing programme to localize the manufacture of components. While all of them were allowed technology import to manufacture a car, no further import of technology was allowed to upgrade the cars or change models. Foreign exchange conservation was the reason for this policy. Based on the Tariff Commission report in 1956, protection was granted to the industry for ten years. As with most timebound protection schemes, the period was repeatedly extended and no competition was allowed. This led to the situation where cars produced in India gradually became obsolete in terms of technology, consumed too much fuel and were of poor quality.
The following year, because of foreign exchange constraints, the government limited the types and makes of automobiles to be developed. Only three passenger cars were allowed. The domestic car manufacturers did not invest in building any engineering base to develop models for the future. There was no motivation to do so, given the fact that their volumes of production were limited by their licences. These could be sold without any need to develop new models. Building development capability without external help was probably impossible, and the government policy did not allow such arrangements.
The policy was to discourage car use, since it was treated as an item of luxury. Thus high taxes were levied and manufacturers did not have a free hand to raise prices. It was only in 1973 that six-monthly price increases were allowed, but even this led to constant friction with the government. The only imported cars on the streets were those that belonged to the diplomatic missions. Diplomats, who imported these cars without duty, could sell them in India at very high prices. As a result, the government prescribed that diplomats would need to sell their cars to the public sector State Trading Corporation at their depreciated value, calculated according to a government-set formula. The STC later auctioned these cars and made large profits. The auction system could also be manipulated in special cases to ensure that selected persons could buy a good car at a low price. The cars made by Hindustan Motors and Premier Automobiles were indigenized in a few years and there was no need to import components for them. Only spares for foreign cars were allowed to be imports, and they attracted high import duties of over 200 per cent.
By the late 1950s, the government decided to look into the idea of manufacturing a small car in India. An Ad Hoc Committee on the Automobile Industry under economist-bureaucrat L.K. Jha was set up to look into the feasibility of manufacturing a low-cost passenger car in India. It was meant to cater to those whose monthly salary was below Rs. 1,000 and who could not afford to buy a car at the prices prevailing in those days. The target price was around Rs. 6,000 against the Rs. 10,000 price tag of the cars in the market. The committee (which promptly got dubbed the Cheap Car Committee and the Low Cost Car Committee) studied different models and manufacturers and did not rule out foreign collaborations. In its report, submitted in 1960, it set out the criteria that should decide the model and favoured one of the existing car companies manufacturing the selected model. The committee received twenty-four proposals from various firms, including the public sector Hindustan Aeronautics, French car maker Renault (which proposed to partner with Mahindra and Mahindra), Hindustan Motors, Premier Automobiles and Tata Locomotive and Engineering Co (Telco, which later was renamed as Tata Motors and would go on to unveil the world’s cheapest car, the Nano, close to fifty years later). However, the tenure of the committee was over before it could ask for more detailed proposals and it is not known what progress was made in establishing the manufacture of a low-cost car.
The Planning Commission and the government also studied the idea of manufacturing a low-cost car in the public sector. At one point, the industries minister Dinesh Singh had told Parliament that a decision had been taken to start a low price car project in the public sector. In November 1970, the Cabinet decided on manufacturing a small car in the public sector and discussions were held with foreign car makers, including Renault, Ford and Nissan. However, the government estimated that the project, which would necessarily involve foreign consultants and collaboration, would require an investment of Rs. 57 crore. It was decided that this could not be a priority for the government, given the paucity of resources. Instead, private entrepreneurs wanting to manufacture a low-cost car would be welcome. Eleven letters of intent were issued which, if they came on stream, would have created an installed capacity of 1.56 lakh cars.5 One of those receiving a letter of intent was Sanjay Gandhi.
The conditions under which the car would be manufactured were extremely tough. Foreign collaborations, consultancies and import of capital goods and components were barred. This was despite it being well known that there was no expertise available in India which could design and manufacture a small car with only local resources. India did not also have the capability to build the required capital goods. It is doubtful if even Henry Ford—founder of America’s Ford Motor Company and father of the assembly line in automobile production—could have manufactured a car in India under these conditions.
Out of the eleven letters of intent, only three were converted into industrial licences. One of these was in favour of Sanjay Gandhi and the other two went to Manubhai H. Thakkar of Vadodara and Sunrise Auto Industries of Bangalore. The latter had plans for a three-wheeler passenger car.6 Sunrise Auto rolled out a three-wheel car in 1976 and continued production till 1982, when it manufactured 126 cars, while there is no record of Thakkar having started his project. This procedure largely protected the government from any criticism of having favoured Sanjay Gandhi in issuing a licence to manufacture a car. On paper, at least, all those interested had been given an opportunity to undertake car production.
Ever since his return from Britain, Sanjay had been obsessed with the idea of making a small car. He discussed his ideas with Captain Tillu, an instructor at the Delhi Flying Club (flying was his second passion) at the now defunct Safdarjang Airport in the heart of New Delhi, which he used to frequent. A workshop was needed to put his ideas into concrete shape. Tillu got some space in Gulabi Bagh, a congested locality in north Delhi, full of tiny sheds masquerading as workshops. Some time in 1966, Sanjay and Tillu set up a workshop in one of these sheds, with hardly any equipment, and hired two mechanics. In those lowly surroundings, both in the extreme summer heat and the chilly winters, the son of the Prime Minister would potter around with automobile parts from 8 a.m. to 7 p.m. Soon Sanjay wanted a bigger place and the workshop shifted to the premises of the Sylvania Laxman factory in the industrial area of Moti Nagar in west Delhi. While Sanjay worked to develop his concept of a small car, the process of getting a licence was under way. When it was clear that this would be possible, Maruti Motors Limited was incorporated on 4 June 1971. Some noted industrialists of the time were drafted as directors/shareholders—Raunaq Singh of Apollo Tyres, M.A. Chidambaram of Southern Petrochemicals India Ltd, Charanjit Singh of Pure Drinks (which was the bottler for Coca-Cola then) and V.R. Mohan of Mohan Meakin. A letter of intent to manufacture 50,000 cars a year and an industrial licence followed. All was ready to start India’s small car project.
Sanjay applied for a plot of land in Gurgaon, situated in the neighbouring state of Haryana but bordering Delhi. The Haryana chief minister, the late Bansi Lal, was a Gandhi family loyalist, and he acquired and made available 297 acres of prime land to Maruti Motors Ltd for Rs. 35 lakh. Later, when the company went into liquidation, the acquisition of this land was one of the actions which was inquired into by the Janata Party government.
Construction work for the factory started immediately. A boundary wall quickly came up, along with a U-shaped factory covering 1 million square feet, and this was followed by a research and development centre. Meanwhile, Sanjay had developed a prototype of his car and it was shown at the India International Trade Fair in 1972. Another prototype was sent for testing to the vehicle research department of the defence ministry, which gave it a certificate of roadworthiness. The car was taken for a test drive across Jammu and Kashmir, Rajasthan, Haryana, Punjab and Uttar Pradesh. Seventy-three dealers were appointed, and each had to pay a deposit.
Commercial production of cars never started in Maruti Motors. It was an impossible proposition, considering the need to manufacture and procure all the required components, including an engine and a gearbox, locally. The equipment with the company could not be used to assemble cars, except in a totally manual manner. However, in 1976, Maruti Motors had furnished information to the government that the manufacture of cars had commenced from 7 July 1975 at the rate of 15-20 cars a month.7 At this time the national Emergency was in force and Sanjay was all-powerful. This declaration could hardly be questioned by anyone.
Since the car business was not going to generate funds, some other source of income had to be developed. A new company, Maruti Heavy Vehicles, was formed to manufacture roadrollers. It acquired a Kolkata-based company, Agrind Fabrications, and went into business, diversifying into bus bodies later. With the imposition of Emergency in June 1975, Sanjay got preoccupied with politics, but Maruti Heavy Industries prospered. Getting business was not a problem, with municipal bodies and state governments buying the roadrollers and many state transport undertakings placing orders for bus bodies. As long as the Emergency lasted, business flourished.
And then the Emergency ended. General elections were held in January 1977. The Congress was routed. The Janata Party, a coalition comprising a host of non-Congress parties, came to power. A slew of inquiry commissions were set up to look into the excesses of the Emergency. The operations of Maruti Motors and Maruti Heavy Vehicles also came under scrutiny. Even before the Emergency, the company was under attack from the opposition parties, with several discussions in Parliament on the change in the government’s automobile policy to favour Sanjay and allegations about the allocation of land, among other things. Perhaps realizing this, all the directors, except Kapil Mohan (V.R. Mohan’s brother), resigned from the board as soon as the news of the Congress defeat in the elections came in.
One of the inquiry commissions was devoted exclusively to Maruti. The D.S. Gupta Committee was given a thirteen-point term of reference, which included looking into all matters relating to the initiation, processing and clearing of the Maruti small car project and whether it was given any special preference in the matters of testing and clearance of the prototype of the car, contracts and agreements with public sector undertakings, and allotment of controlled commodities like steel and cement.
Labour trouble erupted at the factory. Kalra recalls that one day Sanjay was gheraoed by the workers for close to twelve hours. They wanted the government to nationalize the factory. They said they would allow Sanjay to leave only if he promised never to return to the factory. He agreed and left. From that day on, says Kalra, he never visited the factory.
The Gandhi family got preoccupied with legal cases and other political problems. With the orders for Maruti Heavy Vehicles drying up and commercial production of cars not a possibility, the company had no real source of income, but expenses on staff and maintenance of facilities continued. In order to restrict further increase in liabilities, shareholders Charanjit Singh and Sagar Suri asked for liquidation of the company. On 6 March 1978, the Punjab and Haryana high court ordered winding-up proceedings of Maruti Motors Ltd. Both the immovable and movable properties of the company passed into the custody of the official liquidator. According to the statement of affairs filed with the official liquidator, the company had recorded a turnover of Rs. 5 crore between 1 April 1976 and 22 July 1977, after which it remained closed.8
During the period the Congress was out of power, Sanjay had no time or means to pursue his dream project. However, Kalra remembers that he often spoke about it between 1977 and 1980. The luck of the Congress and the Gandhi family turned in January 1980 when the party returned to power with a huge majority. Sanjay, says Kalra, was excited about two things—the Maruti project and a single-engine two-seater Pitts S-2A aircraft meant for stunts that belonged to the Delhi Flying Club. He held discussions with Charanjit Singh, Sagar Suri and his younger brother, hotelier Lalit Suri, about whether they could arrange collaborations for Maruti with foreign car manufacturers. He planned to try for an amended licence to start a joint venture and revive the company. According to Kalra, attempts were made to find a collaborator, but the response was not good. This was no big surprise, given the state of the car industry in India and the political connotations attached to this project.
In any case, fate had other plans. On 23 June 1980, the redand-white Pitts aircraft in which Sanjay was attempting spins and dives crashed. He was killed instantaneously.
Mrs Gandhi didn’t want her son’s dream to die with him. Soon after his death, she called Arun Nehru, her second cousin’s son, and member of Parliament, and asked him if it was possible to revive Maruti. The air was thick with rumours that other partners were planning to sell the land and these must have reached her. Nehru came into politics from the corporate sector and was heading paints company Jensen and Nicholson in Kolkata. He was called because Mrs Gandhi wanted an objective commercial assessment of the viability of the project. Nehru went through all the papers that were handed over to him. He already had a sense of the project, since he had visited it off and on with Sanjay and Rajiv Gandhi. Nehru said it was possible to revive the project, but it could be a success only if foreign technology was used and a joint venture was formed with the technology giver. He also voiced an opinion that a minimum production volume of 100,000 cars a year was required for viability.
This formed the basis for Mrs Gandhi to act. She decided that a government company should be established and given the task of finding technology, and entering into a joint venture to manufacture 100,000 cars a year. There was no opposition from within the government to this idea. No one would have dared to oppose her on such a sensitive matter. An ordinance was issued to acquire the assets and undertakings of Maruti Motors Limited which was later given legitimacy through the Maruti Limited (Acquisition and Transfer of Undertakings) Act, 1980.
The statement of objects and reasons said, ‘looking at the present state of the car industry in the country, Government felt that it would be desirable to set up a public sector undertaking under the Central government for the manufacture of passenger cars, commercial vehicles. The purpose of nationalization was modernizing the automobile industry, effecting more economical utilization of scarce fuel and ensuring a higher production of motor vehicles.’
Maruti Udyog Limited was incorporated on 24 February 1981 as a 100 per cent government-owned company. The acquired undertakings of Maruti Ltd were transferred to the new entity from 23 April 1981. It is significant that the name of the government company was very close to that of Sanjay’s defunct company. For a long time many people thought it was the same company, and did not realize that this was a public sector undertaking in which no member of the Gandhi family had any stake whatsoever.
The government decided that the Maruti project should be set up with a capacity to manufacture 100,000 passenger cars and 40,000 light commercial vehicles with a payload of 2 to 3 tonnes. It was also decided that technology should be obtained from a foreign collaborator. One other decision, not recorded anywhere, was that the products should bear the name ‘Maruti’. In that manner Sanjay’s dream would become reality.
The stage was now set for the next chapter in the life of Maruti. Little did anyone know that the project would go on to revolutionize the Indian automobile industry.