Imagine being asked to pay more for a car you bought a year ago. Early in 1972, people who had bought Premier Padmini (Fiat 1100 D) cars between July 1, 1970 and April 15, 1971, received letters to cough up Rs 1,800 each. It was a lot of money in those days when a new car cost Rs 22,000 (see graphic).
The buyers had signed undertakings to pay up if Supreme Court of India allowed Premier to increase prices. The company and its two competitors — Hindustan Motors and Standard Motor Products — had challenged Government of India, which fixed prices of everything from cars to bread in those days.
After losing the case, the government reluctantly notified new ex-factory prices for all three makes of cars on January 24, 1972:
If you are wonderstruck by these ‘low’ prices, in January 1957 the same cars cost Rs 10,424, Rs 8,934 and Rs 8,702, respectively, at the factory gates. Today, you probably pay that much for a routine service and synthetic engine oil. That’s what inflation does to money.
Now when the country is crawling towards a goods and services tax regime (GST), this case shows what a bizarre economy we were only four decades ago when government even decided how much profit a business could earn. For car prices, it allowed only 12% return on capital, but Supreme Court increased it to 16%. Either way, market forces had no role. The home ministry’s Enforcement Department raided car makers and arrested their officers on charges of price manipulation.
Swadeshi (indigenisation) was the only holy grail, shutting the door on new foreign technology. All three cars were almost completely localised, and continued unchanged decade after decade:
The government also had a tendency to get into businesses it had no business being in. When people complained about the deteriorating quality of car components, it set up a committee to suggest improvements and sent inspectors to factories. It in fact opposed the car makers’ demand for higher prices on the ground that they were slipping up on quality.
Politicians of all colours talked about nationalising the car industry, some said the three companies should be merged to reduce costs and bring down prices. Singed by the Supreme Court order, the government sought the law department’s opinion on denying courts any say in matters of price fixation. They were scary times indeed for businesses.
And then, the government decided to turn car maker itself. There had been talk of a cheap car or a people’s car since the 1950s, and in the second half of 1970, the government announced its intention. Two years later, a Cabinet decision was still awaited.
Meanwhile, the way to lower car prices was quite evident to all: lower taxes and duties. The on-road prices of cars were almost 40% higher than the ex-factory prices, yet the government refused to look into it. That attitude continues to this day, be it cars, petrol or your weekend pizza treat.
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