Chennai: When South Korean automaker Hyundai Motor Co. first drove into India in 1996, it scouted around before choosing to build its factory in a southern Indian village of rice paddies and wetlands.
Now, drawn by tax breaks and infrastructure advantages, it has returned to open a second factory on the same site, and plans to double production to 600,000 units a year.
The confidence Hyundai is displaying indicates the growing ambitions of state governments as they compete to attract some of the world’s biggest automobile makers.
The stakes are high—the government estimates $50 billion (Rs1.99 trillion) of auto industry investment will flow into India by 2016.
Most state governments, including Tamil Nadu, are offering fiscal and tax sops to draw car makers tempted by a market where sales are forecast to reach two million units by 2010 from 1.4 million last year.
For the states, the attraction of the car sector, which currently employs some 13 million people, lies in its potential to boost jobs and infrastructure, said industry analyst Murad Ali Baig. “For every job created by the automobile industry,” Baig said, “there are five more created in the secondary sector. From tea shops and hotels, to masons and educators, it has a multiplying effect on employment.”
Hyundai’s new plant, making India its biggest overseas manufacturing base, opened earlier this month in Sriperumbudur, some 50km from the port city of Chennai.
“We always had plans to use India as an export base,” said Arvind Saxena, a senior vice-president at Hyundai Motor India Ltd. “Sriperumbudur’s proximity to the sea port and the international airport were major advantages.”
Saxena said they got support in tax exemptions and land acquisition, and pointed to good infrastructure and plenty of skilled manpower. Those, coupled with a thriving spare parts industry, have enabled Chennai to steal a march over rival automobile hubs.
Chennai also hosts Ford Motor Co., Mitsubishi the Renault-Nissan alliance, and BMW AG, and a production capacity of 1.2 million cars a year—35% of India’s total. It has attracted $4.5 billion of auto investment, so far.
“Chennai has consolidated its position as the Detroit of South Asia,” said M. Velumurugan, director of Guidance Bureau, the agency overseeing investment in Tamil Nadu.
Chennai’s location at the centre of south India, a prosperous region of 220 million people, gives it the edge over other aspiring hubs, said auto industry official Dilip Chenoy.
It is competing against cities such as Pune, which had drawn DaimlerChrysler AG and Volkswagen AG, while Tata group is making the world’s cheapest car, the $2,500 Nano, in West Bengal. India’s biggest car maker, Maruti Suzuki India Ltd, is based in Gurgaon, adjoining Delhi.