Chennai: When South Korean automaker Hyundai first drove to 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 its production to 600,000 units a year.
The confidence Hyundai is displaying in the facility indicates the growing ambitions of India’s state governments as they compete against each other to attract some of the world’s biggest automobile makers.
The stakes are high - the government estimates $50 billion of auto industry investment will flow into India by 2016.
Most state governments, including Tamil Nadu whose capital is Chennai, are offering fiscal and tax sops to lure carmakers 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 lure 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 50 kilometres (30 miles) 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 India. “Sriperumbudur’s proximity to the sea port and the international airport were major advantages.”
Saxena said they also got support in tax exemptions and land acquisition, and pointed to good infrastructure and plenty of skilled manpower at hand.
Those, coupled with a thriving spare-parts industry, are advantages which have enabled Chennai to steal a march over rival automobile hubs.
Chennai also hosts Ford, Mitsubishi, Renault-Nissan and BMW and 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 industrial investment in Tamil Nadu.
Velumurugan said the state was in talks with carmakers that could bring at least three billion dollars of investment this year, although he declined to name names.
Ford last month announced plans to invest $500 million To expand in India, most of which would go to its Chennai facility, raising its financial commitment to India to more than $875 million.
That too was part of a “long-term and strategic plan” for India, said John Parker, executive vice president for Ford Asia Pacific and Africa.
Chennai’s location at the centre of south India, a prosperous region of 220 million people that has led India’s nine percent economic growth, gives it the edge over other aspiring hubs, said auto industry official Dilip Chenoy.
It is competing against cities such as Pune in western Maharashtra state, which has drawn DaimlerChrysler and Volkswagen AG, while India’s Tata group is making the world’s cheapest car, the $2,500 Nano, in West Bengal.
Suzuki’s local unit, India’s biggest carmaker, is based in Gurgaon in the north.
The green lobby, however, frets about the energy and environmental impact the boom in car production and sales will bring, while still acknowledging its potential to create jobs.
“Development is essential for job creation,” Greenpeace campaigner Soumya Bratarahup said, “but development must be sustainable.”