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Suzuki has reached an amicable agreement with the government after announcing recently that it would start another joint venture in India – Suzuki Maruti India Ltd – to build cars.

The announcement led to speculation over the future of Suzuki’s existing Maruti Udyog JV while the government, still a significant shareholder in Maruti, expressed displeasure at not being previously consulted.

The car maker has now assured the government that Maruti Udyog will be offered a 70% stake in the new car manufacturing joint venture (Suzuki Maruti India Ltd.) and up to a 49% stake in the facility to produce diesel engines.

The final decision on the actual equity structure will be taken by Maruti’s board. Suzuki will have more equity in the diesel unit because it would provide the technology.

Maruti stock prices had taken a beating after Suzuki’s announcement, falling by up to 10% as investors panicked.

The new joint venture is expected to build a new car assembly plant with capacity for 250,000 cars a year in Manesar, near Delhi.

It is also expected to make bigger cars like the upcoming redesigned Swift while Maruti continues to make small cars – most based on several generations of Suzuki’s Alto – at its plant in Gurgaon.

The Indian government has sold off much of its stake in recent years but retains an 18.28% stake in Maruti Udyog which it is expected to divest in August 2005.

Deepesh Rathore / Tilak Swarup