How India scuttled its scooter bazaar in the 1970s
When cooks hired for a wedding feast couldn’t serve the guests quickly enough they asked the host for space to set up two more stoves. The host thought for a while and then told them he had a better idea — he was going to learn cooking, start his own kitchen and serve dinner himself.
If you find the story far-fetched, turn the page back to 1972 when Government of India did exactly that. It was a time when the wait for a scooter — Vespa or Lambretta — stretched to seven years (government’s admission). Book one today, ride it in 2023.
The middle class was growing. A study group of the government’s Planning Commission estimated that 210,000 scooters would be needed in 1973–74. The think tank National Council of Applied Economic Research (NCAER) said annual demand would increase to 243,000 scooters within eight years, by 1979–80.
How many scooters was India manufacturing in 1972? These are the government’s own production/sales figures for 1969–72:
The queues were clearly going to get longer. The two big licensees — Automobile Products of India (API) that made Lambretta scooters, and Bajaj that made Vespa scooters — had applied for permission to increase production capacity to 100,000 units each per annum, but instead of saying ‘yes’, the government started reviewing their applications under Monopolies and Restrictive Trade Practices Act.
See the irony of it? Both firms were born of and ran with government licences. The government decided how many scooters either one could make in a year; it also set their prices. Yet, when time came to increase production, it sat down to consider whether it was creating monstrous monopolies.
That was not the only thing the government did. It scurried off to Milan to buy the “entire plant along with all auxiliaries as well as the technical know-how, including worldwide trademark and export rights” of M/s Innocenti, owners of the Lambretta brand. That might have been a good thing in the early 1960s, but by 1972 Innocenti had already lost to Vespa. They had thrown in the towel. They were closing down their scooter business.
Government of India closed the deal for $1.85 million (Rs 1.5 crore in those days at an exchange rate of about Rs 8 to a US dollar) and proudly announced it was going to start making 100,000 scooters per annum on its own. In the new company, government was to have 51% stake, M/s Innocenti 20%, and API, other institutions and the public the remaining 29%.
Why were Innocenti given a stake? Government’s virtuous reply was that it would keep $400,000 of the sale price within the country and also ensure the Italian company’s technological know-how forever. Never mind that it was outdated technology that people across the world didn’t want anymore.
Why were API given a share? Because they had proposed to buy out Innocenti’s Italian unit first, and also because their experience of making Lambretta scooters in India would be useful to the new company, so the government said.
A deal of this sort was bound to raise questions. Members of Parliament asked why precious foreign exchange was being spent on machinery that Hindustan Machine Tools (HMT) could have made in India. Government replied it was an “as is where is” deal; they couldn’t choose bits and pieces of the factory.
Wasn’t the machinery old and much-used? Was it worth the price? Government said it had sent a team of experts — including the vice-chairman of API — to inspect the plant, and had also got an independent assessment done by London-based M/s Gibb Ewbank. Industries minister Moinul Haque Choudhury said, “The condition of the machinery was reasonably good and the value was more than the amount of $2 million asked”.
The first scooter from the new factory was not expected until two years later, but the government said that was a lot better than the “7–8 years” making a completely new scooter from the drawing board would require.
Did time prove the government right? The new company, Scooters India Limited, never ran to capacity even in those shortage years. Instead, it ran up huge losses before it stopped making two-wheelers. Like the rest of the world, Indians chose Bajaj’s Vespa technology. And the waiting period for a scooter grew to more than 10 years before the market caught up with demand.
This is the second article in a series about the horror years of India’s automobile market. Part 1: India’s Bizarre Car Bazaar of the 1970s
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