West Bengal’s costs to retain Tata Nano beginning to mount

West Bengal’s costs to retain Tata Nano beginning to mount
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First Published: Tue, Sep 16 2008. 10 27 PM IST
Updated: Tue, Sep 16 2008. 10 27 PM IST
Kolkata: The recent decision of the West Bengal government to raise the compensation offered to farmers at Singur who gave up land for a Tata Motors Ltd car factory effectively raises the cash incentive offered to the company’s Tata Nano project to at least Rs300 crore.
This comes on the top of tax and other incentives already being offered by the state to the company.
A state government official, who didn’t want to be named, said most of these incentives were offered because West Bengal had to match those dangled by the Uttarakhand government.
The official pointed out that even if Tata Motors only made 200,000 cars a year at the plant, the government would get revenue of at least Rs500 crore.
Mint couldn’t immediately verify this number or the basis on which it had been arrived at by the official.
Much of it, however, will likely come from excise duty, since Tata Motors has been granted exemption from most other levies for varying periods of time.
The state had estimated it would earn at least Rs500 crore from all taxes combined—Central sales tax (CST), value-added tax (VAT) and excise duty. But it wouldn’t start earning from sales of the Tata Nano from Day 1, because it would be returning CST and VAT in the form of a loan bearing an interest of 0.1% till it has fully matched Uttarakhand’s incentives.
The Tata Nano is expected to sell for at least Rs100,000 each.
The magnitude of some of these incentives came to light following a March report by India’s audit watchdog and the recent release of part of the agreement between the state and Tata Motors on the website of the West Bengal Industrial Development Corp. Ltd, or WBIDC.
A spokesperson for Tata Motors spokesperson said his company didn’t want to comment on issues “not in the public domain”.
The auto maker recently moved the Calcutta high court seeking to restrain the state government from revealing the full text of the agreement, parts of which have already been published on the WBDIC website.
Mamata Banerjee, leader of the state opposition party, the Trinamool Congress, has been demanding the release of this agreement even as she has been leading the protest against the Tata plant.
The issue came to a head in late August after Banerjee started a protest in front of the plant and Tata Motors chairman Ratan Tata said he would consider moving location.
The state leased 645.67 acres to Tata Motors for 90 years for an annual lease rent of Rs1 crore for the first five years, going up to Rs20 crore a year from the 61st year.
In a report released in March, the comptroller and auditor general of India, or CAG, valued the land allotted to Tata Motors at Rs96.72 crore, and pointed out that West Bengal had offered a subsidy of Rs76.11 crore on the plot allotted to the company. To derive this figure, CAG calculated the net present value of the total lease rent that Tata Motors would be paying through the 90 years.
The government spent more than Rs140 crore to acquire the 997-acre project site.
CAG said West Bengal should have realized at least 95% of the market value of land as one-time lease premium from the auto maker in keeping with directives of the Union government.
The government also offered incentives to component manufacturers.
According to the part of the lease agreement between the West Bengal government and Tata Motors that is in the public domain, the state allotted 290 acres at Singur to makers of auto parts at an annual lease rent of Rs8,000 per acre for the first 45 years, and Rs16,000 per acre for the next 45 years.
This apart, the West Bengal government offered a loan of Rs200 crore to Tata Motors at a nominal interest rate of 1%. The repayment of this loan starts from the 21st year in five annual instalments.
WBIDC, the key facilitator for the project, had borrowed Rs200 crore at 10% a yearfrom another state government enterprise for acquiring the land.
The government also agreed to offer electricity to the factory at Rs3 per unit, or 1kWh, which according to Moloy De, chairman and managing director of West Bengal State Electricity Board, or WBSEB, is the standard rate offered to most industrial units in the state.
But the government has agreed to compensate the auto manufacturer if WBSEB raises the tariff by anything more than 25 paise per unit within five years.
The annual loans will be repaid after 30 years. The agreement does not, however, specify the number of years for which the state government will be returning VAT and CST earned on sales of the Tata Nano in the form of loans.
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First Published: Tue, Sep 16 2008. 10 27 PM IST