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What Is India News Service
Saturday, December 23, 2006



 

 

 

 Govt to Divest from Maruti

  After 25 years of partnership with Japanese Suzuki Motors through Maruti Industries, the Government has decided to sell its remnant 10.27% stake for an estimated Rs. 2,700 crore (USD 586 million) to overcome budget deficits.
 

 

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After 25 years of partnership with Japanese Suzuki Motors through Maruti Industries, the Government has decided to sell its remnant 10.27% stake for an estimated Rs. 2,700 crore (USD 586 million) to overcome budget deficits. However, the government refused to divulge when they would sell this stake and said it could happen this fiscal or next. Suzuki will continue to hold the majority 54.2% stake.

Since this is not a disinvestment of a public-sector utility, the proceeds will not go into the National Investment Fund (NIF) fuelling speculation that the government is using the proceeds to cover budget deficit and not to fund social projects. The sell-off process through a couple of underwriters is expected to be based on floor pricing mechanism where a minimum quote price is listed and bidders with the highest price will get first dibs on the stocks. In January 2006, a similar process to sell 8% net Rs. 1567 crore (USD 340 million) and since then the stock price has grown by 35%. In June 2003, the government sold a 27.5% stake to net only Rs. 993 crore (USD 215 million).

With the government out of the way, Maruti is planning to invest Rs. 9000 crore (USD 1.95 billion) to expand capacity and launch new products. Its net profit has grown 39% to Rs. 1189 crore (USD 258 million). Created as a job generation mechanism in 1981 and produce inexpensive cars, the company has come a long way to not only meet these objectives but also to become a profit making and exporting entity.

Despite this decision, government policy on economic sustainability through economic and labor remains in suspended animation because of its inability to bring around cantankerous communist alliance partners bent on taking the nation back to good old days of negative growth and economic stagnation. At the end of the 41st Session of Standing Labor Committee, the Federal government clearly told state Labor Ministers that it is reluctant to reform labor laws even though its own draft XIth Five Year Plan wanted such reforms and the Ministry of Finance had recommended such reforms to sustain the 9.1% gross domestic product (GDP) growth.

 

 

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