 "Tata Motors renegotiates fiscal benefits for Sanand plant")
Tata Motors, the country's largest automobile company, is in the process of renegotiating the terms of the State Support Agreement (SSA) it had signed with the Gujarat government in 2008 to set up a factory at Sanand, close to here. The company is preparing to roll out a new hatchback from Sanand by the end of this year. And, it is learnt that the government has indicated the same set of benefits (including on taxation) cannot be extended to models other than the Nano that would be made at Sanand.
The SSA had mentioned the Nano car project. "It was mentioned as it was a special project at that time - the world's cheapest car, plus it was getting relocated from West Bengal. Getting the Nano here was a matter of pride. A special project status was accorded to the Sanand plant as well," said a senior government official who has been closely associated with the project since its initial days.
Subsequently, Gujarat saw the entry of other major automobile companies - Ford India, Maruti Suzuki, Honda Motorcycle and Scooter and Honda Cars India. None of the other SSAs mention the car model to be manufactured at the allotted site.
Government officials say the company had sought the same set of benefits as given to the Nano for the other cars they plan to make at Sanand.
"The government as such has no objection to the company making other cars at Sanand... However, we have to see if the same benefits could be extended beyond the Nano," said one official.
A company spokesperson said, "As a part of our dynamic product optimisation strategy across plants we continue to evaluate best suited locations for existing and new products and work closely with relevant regulatory and government stakeholders for necessary supports. However, these plans and discussions are necessarily confidential and we do not comment on future production plans."
Among the benefits that were accorded to the Tata Nano project, the major one is in the form of a soft loan at 0.1 per cent simple interest per annum for 330 per cent of the first phase investment of Rs 2,900 crore planned by Tata Motors. An additional condition of capping the amount up to the gross Value Added Tax (VAT) and Central Sales Tax (CST) payable to the state government on the sale of the Nano car and its parts and components from the date of commencement of the sale of the first Nano car was also included. The loan would be repayable in monthly installments starting from the 21st year of the commencement of sale of the first Nano.
A state government official who has worked closely on drafting the SSA said on grounds of anonymity that while the initial understanding was to extend a soft loan of the amount equal to 330 per cent of the initial investment (or Rs 9570 crore), it was later decided that it would be capped to an amount equalling to 230 per cent of the initial investment by the company (or Rs 6,669 crore). This happened sometime around 2011-12 when the company and the state government were negotiating whether the gross VAT amount be considered or the net VAT amount be taken into consideration when the state government extends the soft loan.
"The gross value of taxes would be more than the net value which actually goes to the state treasury. However,based upon the company's argument, it was decided that in this case the gross tax value would be considered. And thereafter a loan agreement was signed sometime during 2012-13 and so far not more than Rs 300-350 crore of soft loan has been disbursed to the company," said the official.
For the other projects that came in after the Tata Nano, which have been granted VAT refund granted to the company for 10-15 years with a cap of net investment made by the company in the state, the state government has calculated the amount based on net tax value. Furthermore, Gujarat government offers certain standard incentives to all projects which entail an investment over Rs 1,000 crore (mega projects), like waiver of stamp duty and registration fee among others.
As such the company has an installed capacity of 250,000 cars per annum at Sanand and is making around 1600-1700 Nanos per month there.
At the moment, while the company has sought to not only make cars other than Nano at Sanand, but also asked for benefits to be extended, the state government is deliberating with two options. One, the renegotiated fiscal benefits be made applicable as a blanket on any car produced at Tata's Sanand plant, and second, let the benefits given to the Nano continue and for other cars the state government and the company could renegotiate terms.
State government sources seemed confident that there is no reason why the terms of fiscal benefits cannot be renegotiated with the company, and as such these routine discussions do not pose any hindrance to the project as such.
