Tata Motors wants Gujarat to extend sops beyond Nano at Sanad plant6 min read . Updated: 24 Jul 2014, 12:23 PM IST
Minister says govt will have to consider whether to extend benefits if factory is used for other cars
Ahmedabad/Mumbai: Tata Motors Ltd is trying to get the state of Gujarat to expand the scope of the agreement between the two regarding sops and incentives for the Nano plant in Sanand to include other Tata cars as well, two people familiar with the matter said.
There have been reports earlier as well that Tata Motors was considering this, given the lukewarm response to the car that the company and just about everybody else expected to become a best-seller.
On Tuesday, Tata Sons chairman Cyrus Mistry met Gujarat chief minister Anandiben Patel for what a Tata Motors spokesperson termed a “courtesy meeting". A senior Gujarat government officer who spoke on condition of anonymity said “the future prospects of the Nano factory" in Sanand were discussed.
Mistry “conveyed the Tata group’s continued commitment to our initiatives and investments in the state of Gujarat", the Tata Motors spokesperson added.
“Long-standing relationship between Tatas & Gujarat would be taken forward. Had a fruitful meeting with Mr Cyrus Mistry," the chief minister said in a tweet.
The Gujarat government has been tight-lipped about the terms of the agreement between the two, and industry minister Saurabh Patel on Tuesday said this couldn’t be tabled in the assembly because it was “confidential". However, thanks to an inadvertent disclosure by a state industry department officer in 2008, many of the key terms of the agreement have been widely reported.
The “state support" agreement is limited to the Nano and Tata Motors may have to sign a new agreement if it wants to make other cars in the Sanand factory, said industry minister Patel. The government would have no issue with Tata Motors using the factory to make other cars, but will have to consider whether it wants to extend tax benefits to these, he added.
A second Gujarat government officer, who oversees industrial investments in the state, said Tata Motors executives have been discussing widening the scope of the agreement with the state administration for the past few months. There was reason to, he seemed to suggest.
“Tata Motors’ entry into Gujarat has evinced a lot of interest from other auto makers who have followed Tatas to Gujarat. There is scope to expand the agreement with them and we are closely examining it," added this person who asked not to be identified.
Patel, however, clarified that the Nano project wasn’t discussed at all by Mistry on Tuesday. The car maker may have plans to make other cars at Sanand, but the issue hasn’t come to him yet, he said.
After attempting and failing to stimulate demand for the Nano in a sluggish car market, Tata Motors is looking at producing other automobiles at its factory in Sanand, Gujarat, as it seeks to turn around its fortunes with a pair of crucial product launches this year.
The company is looking to make amendments to the so-called state support agreement it signed with the Gujarat government in 2008 before starting production of the Nano in Sanand, where it moved after abandoning its plant in Singur, West Bengal, because of protests against the project.
Under the agreement, Tata Motors can avail of tax benefits and soft loans from the Gujarat government exclusively for manufacturing the Nano, billed as the world’s cheapest car with a price tag of ₹ 1 lakh when it was launched in 2009 with much hype.
Under the state support agreement, Gujarat was to extend ₹ 9,750 crore of soft loans to the Tata Nano project over a period of 20 years. The amount is equivalent to 330% of the investment of ₹ 2,900 crore, including relocation expenses, that Tata Motors made in the first phase of the project.
The loans reaching that amount depended on the Sanand facility running at full capacity; the agreement came with a rider that the loans would be equal to the gross value added tax levied on the cars, tying the loans effectively to sales of the Nano.
Tata Motors’ Sanand plant has an installed capacity to make 250,000 cars per year. The capacity remains vastly underutilized with the Nano’s sales averaging a little over 1,000 units per month. In the three months to 30 June, Nano sales dropped 23% to 3,029 units compared to a year ago, according to the Society of Indian Automobile Manufacturers (Siam).
On Tuesday, industry minister Patel said in reply to a question in the assembly that the state government had extended ₹ 419.54 crore of soft loans at 0.1% interest rate to Tata Motors.
The attempt to extend the scope of the agreement with Gujarat comes at a time when Tata Motors is preparing to launch a hatchback called Bolt and small sedan Zest to compete with Maruti Suzuki ’s best-selling Swift and Honda Motor Co. Ltd’s Amaze, respectively, and bolster its falling market share.
Its passenger vehicles sales dropped 37% to 33,157 units in the three months to June, a quarter in which overall car sales grew 2.24% to 444,200 units, according to Siam.
According to two people familiar with the company’s plans, following the introduction of the Zest and Bolt, Tata Motors will start production of an all-new car, a hatchback called Kite, in a project code-named MY15, next year.
This would be part of phase two of the company’s so-called “Horizon Next" strategy, which entails launching all-new products. In the absence of new automobiles, Tata Motors has skidded to the fifth position in India’s passenger car market.
In all likelihood, the company will produce the new model and several other forthcoming models at the Gujarat facility, said the two people on condition of anonymity.
Attempts to boost sales of the Nano by repositioning it as a smart city car aimed at youngsters, replacing the “cheapest" tag and equipping it with new features such as power steering, haven’t quite worked.
“I don’t see the Nano volumes improving to the extent that the company can utilize the facility optimally," Arora said.
The Gujarat facility, being newly built, is more modern and better equipped to manufacture next-generation cars compared with Tata Motors’ existing facilities, he said.
How Tata Motors moved the Nano project from Singur in West Bengal to Sanand has become a part of India’s business folklore.
Mamata Banerjee’s Trinamool Congress waged a fierce campaign against the Nano project, alleging that fertile land belonging to local farmers was being grabbed by the state’s Communist government for the project, forcing Tata Motors to look at other locations.
When the company picked Sanand, then-Gujarat chief minister and current Prime Minister Narendra Modi said he had sent an SMS worth ₹ 2 to Tata Motors’ then-chairman Ratan Tata inviting him to the state. In return, Gujarat had been rewarded with ₹ 2,000 crore of investment, Modi said.
A third Gujarat government officer directly involved in the matter said the state support agreements signed by Gujarat with Maruti and Ford are for the overall project and not any particular brand. The Nano “was seen as a revolutionary car at the time and so the state signed an agreement mentioning it. But this agreement was with the consent of the two sides and there is no reason why it cannot be renegotiated," added this person who asked not to be identified.