As we have seen in the first part
of this article, when Jawaharlal Nehru came to power in 1951, after India’s first general elections, India already had a fledgling automobile industry. So, what were the options that Nehru had? He could either shut them down or encourage them, yet make sure that they were sustainable.
The year 1951 was a landmark for the industry, when the Industries (Development and Regulation) Act (IDRA) was enacted. The Act required an entrepreneur to get a licence to set up a new unit, to expand it, or to change the product mix.
The purpose of this system of licensing was to create a planned pattern of investment, to minimise resource waste, to counteract monopolies and the concentration of wealth and to maintain regional balances. All very good intentions; but good intentions are one thing and their execution (specifically in India) is another.
In the automotive sector, execution meant that the right to make different kinds of automobiles was restricted to a handful of manufacturers. Mahindra & Mahindra had to concentrate only on Jeeps. TELCO received a licence to make only trucks. So did Ashok Motors, which had to give up its assembling of the Austins.
Austin, in the meantime, had merged with Morris, the collaborator of Hindustan Motors (HM), and the Nuffied Organisation in 1952 to form the British Motor Corporation (BMC). Similarly, Bombay-based Automotive Products of India (API), which had an assembly operation for another British brand, Hillman from the Rootes group, from 1949, received a licence to manufacture scooters. So, in 1955, API switched to manufacturing of Lambretta scooters (instead of assembling the Hillman), in collaboration with Innocenti of Italy.
If America could have its ‘Big Three’, India had its ‘Little Three’—Hindustan Motors, Premier Automobiles and a Madras-based assembler, Union Motor Company, which had set-up an assembly line in 1949, after getting a licence to make cars (and which had signed up with another British car-maker Standard Motor Company). The government’s thinking was that there should be at most one car-maker at each of India’s three major ports.
What Nehru and the Indian government did—to restrict the licence of manufacturing automobiles to a handful of private enterprises—is exactly what Japan did during the same time, and is what South Korea would eventually do two decades later. It may also be interesting to note that the permissions to assemble/manufacture cars were granted only to the zaibatsus and chaebols (the oligopolistic big family businesses in Japan and South Korea).
Japan did allow a ‘free for all’ for the motorised two-wheeler industry and by the late-1950s as many as 50-odd two-wheeler manufacturers set up factories. Intense competition ended in a bloodbath and just five (Honda, Hodaka, Kawasaki, Suzuki and Yamaha) survived into the later-1960s.
In 1954, the Indian government realised that there were some 60-odd models of cars (mostly imported) selling in a market, which barely aggregated 20,000 sales per year. Clearly, with competition from imported vehicles, the fledgling auto industry could not survive. The import of automobiles and components as well, was a serious drain on foreign exchange. With self-sufficiency as the mantra of Nehru and the government then, it was decided, in 1954, that high import tariff for automobiles and components was necessary to support localisation and growth of the automobile industry. Consequently, GM and Ford stopped their assembly operations that year.
With the eventual objective of complete localisation, the three Indian car-makers decided that it would be prudent to concentrate on one specific model, for which they acquired the tooling from their respective collaborators. It also made sense to phase out the assembling of the slow-selling Studebakers and Chrysler Corporation cars, which is what Hindustan Motors and Premier Automobiles did, respectively, by the end of the 1950s.
From the beginning of the 1960s, it was a case of — ‘you can have any car you please as long as it is a Hindustan Ambassador or a Fiat 1100 or a Standard Herald’!
Yet, less than a decade after IDRA was enacted in 1951, the year when the ‘Licence Raj’ came into being, many of the who’s who in the corridors of power had begun to question whether the system actually benefited the people.
One school of thought was that passenger cars per se should be a low priority item for industrial growth and progress; two-wheelers, buses and commercial vehicles were significantly more important than cars, a product available only to the very rich at that point of time. At the same time, politicians expressed concern about the cost and prices of the cars made then. At a price of Rs12,000 for the Hindustan Ambassador (Rs11,554 plus taxes), the car represented 40 years of an average Indian’s salary then!
The Fiat 1100 Select and the Standard Ten were marginally cheaper at Rs10,566 and Rs9,988, respectively, they were very expensive luxuries for the Indian masses. Though localisation had just about begun, it was still a long way from a situation where the import of components was not a drain on foreign exchange which had become very scarce by the late-1950s.
In 1959, with the country facing a serious foreign exchange crunch, the Nehru government looked at ways to cut imports. Swadeshi, localisation, other than being a populist ideological buzzword, was also a necessity, so the government set up a committee in April 1959, under LK Jha, an additional secretary in the commerce ministry at that point of time, to look into the possibility of making a lower-cost ‘people’s car’.
The Jha committee concluded that it would be possible to make an inexpensive ‘people’s car’ at a target price of around Rs5,000 to Rs6,000 (the equivalent of Rs1.8 lakh in current value). This was about half the prevailing price of cars then, and that the demand for such a car could well be over 10,000 units per year.
Submitted in February 1960, the Jha committee recommended that the car should be small, yet roomy, sturdy and capable of carrying an average Indian family. The conclusions of the Jha committee had the Indian government enthused enough for the then minister of industry to announce in Parliament that, “we will have the people’s car, of the people, manufactured by the people, for the people of this country.”
Despite such enthusiasm, in the following year, the government decided to set up another committee, this time under the chairmanship of the retired chairman of the Railway Board, G Pandey, to look into the feasibility of the ‘people’s car’ project.
The Pandey committee concluded that it was, indeed, feasible and recommended that the car be made in collaboration with French car-maker Renault. The fact that Renault was (French) government-owned may have influenced Pandey committee’s recommendations.
The government of India began discussions with Renault. What brought an end to those negotiations was the reaction of the then deputy chairman of the Planning Commission, VK Krishnamachari, who believed that greater priority needed to be given to bicycles, scooters, buses and trucks.
Then, on 9 August 1962, the minister for steel and mines, C Subramaniam stated in Lok Sabha that, “the small car project cannot be moved up in any list of priorities. The priority in the field of automobiles for some time to come ought to be definitely and overwhelmingly in favour of the manufacturers of commercial vehicles which will provide the base for transport of goods and public transport.”
Incidentally, the numbers for the Indian marketplace was not impressive: though the sales of cars had gone up from a very modest 14,688 in 1950 to 26,800 in 1958 (a most impressive growth of 82% in eight years), achieving a volume of even an additional 10,000 (an unviable figure nonetheless) for a fourth car-maker looked a tad too ambitious.
After the war with China in 1962 and other matters of greater import coming up, even by 1964, when Nehru passed away, no decision had been taken regarding the ‘people’s car’ project. The story of how the ‘people’s car’ project came by should be for another day.