Pithampur units face bleak future

MP govt's tax policies affect automobile components industry: PHDCCI

Pithampur, which has been dubbed the 'Detroit of India' for being a carmaking hub, is in its death throes, a PHD Chambers of Commerce and Industry (PHDCCI) report has said.

The PHDCCI said irrational tax policies of the Madhya Pradesh government have adversely affected the automobile components industry of Pithampur in particular, and the automobile industry in the state in general.

If the government chalks out a proper plan, the automobile industry in the state can in five years generate a business of Rs 5,500 crore, up from the existing Rs 2,500 crore. It would include Rs 2,000 crore of new investments.

The auto component industry can generate a business of Rs 1,500 crore (existing Rs 550 crore, with new investment of Rs 500 crore) and auto export would reach $0.5 billion from the existing Rs 75 crore, said the chamber in a report on MP's auto industry.

At present, the auto industry in Madhya Pradesh generates direct and indirect employment for 20,000 people and an expansion of this industry could increase the potential by another 15,000 as against the Chennai auto cluster and Pune cluster that employ 60,000 and 80,000 people respectively.

The sales tax on the auto components industry, which took shape in 1985, was only 4 per cent when the sector took shape in Pithampur. The sales tax increased to 8 per cent in 2001 and 13.80 per cent in 2003.

The chamber, in its report on auto component industry, in MP said, "The components industry, which could be most potential employer and revenue generator of the decade, put at a tax disadvantage of 10% vis-a-vis purchases made outside the state at the rate of 4 per cent."

"The industry is breathing its last," the chamber has said.

According to PHDCCI, the total purchase of components by original equipment manufacturers is Rs 1,035 crore. The component purchase within MP at the rate of 13.8 per cent tax rate is Rs 85 crore, steel panels, casting purchase at the rate of 4 per cent is Rs 100 crore.

The chamber has further said in its report that the sales tax rate on components to be made 3 per cent for manufacturing since the present purchase basket of OEM is growing at the rate of 35 per cent.

The chamber has projected a business of Rs 30 crore for those manufacturers who have already invested in the state but have not started production because of higher rates of tax.

Similarly new outsourcing from OEMs and larger domestic purchase would generate a business of Rs 150 crore. But the larger amount of business is project at Rs 1,500 crore through new OEMs who could establish plants in Pithampur and expand are Hero Honda, Bajaj Tempo Ltd, Eicher, Mahle Migma (with an investment of Rs 1000 crore).

The chamber has also suggested that there is a possibility of stock depots of high cost items like batteries, wheel rim, and tyres to be supplied to OEMs after obtaining from other states as stock transfer. It would generate a business of Rs 200 crore.

The additional revenue of Rs 180 crore could be generated through sales tax on components, vehicle invoices from MP entry tax, share of income tax and excise from tax.

"Madhya Pradesh could become a major auto industry centre. It can become a launching pad for any company since it has cheap labour," he said. The PHDCCI has pointed out that if the state government continues with the present 13.8% tax the present revenue will be reduced by 80% to 1.93 crore only.

The reason is that the OEMs would switch over to other states, the bulky auto component would be converted into job works and the state would lose both direct as well as down stream raw material and consumption revenue.

If the tax is reduced to 3% the growth will be positive and would reach Rs 40 crore since it would be a give a clear message of state government priority and would kick start large scale outsourcing, with material sales and new investment.

MP has Eicher Motors, Bajaj Tempo, Kinetic Motors, Eicher Tractors, L&T Case, Hindustan Motors, Ordinance Factory (Jabalpur) as OEMs while the auto component industry include Gajra Group (Dewas), Adroit (Indore), Gabrial (Dewas), Bridge Stone (Pithampur), JK Tyres (Malanpur), Mahle Migma (Pithampur), Tata Hot Set (Dewas), Capro Group, Gatiman Auto (Pithampur), Brite Brothers (Pithampur), Design Auto (Pithampur), Tata Precision (Dewas), Him Technoforge, Pinnacle Industries.