Patience running out for automakers in Maharastra

It is a bubble that is waiting to burst.

Big names in the auto business, right from Tata Motors and Mahindra & Mahindra to Volkswagen and General Motors, have earmarked over Rs 15,000-crore investments in Maharashtra. They have been sitting on this decision for a year now thanks to lack of any clarity on the new rules for VAT (value-added tax) refunds.

The present thinking within the Government is that only vehicles sold in the State will qualify for a set-off against VAT quite unlike the recent past when this extended to total sales.

As an incentive package, this is of little help since companies would have to wait forever to get something in return for their investments in Maharashtra.
Alternative, Gujarat

The new rules came into effect in March last year and the automakers have been waiting since then for some clarity from the Government. Nobody is pushing the panic button yet but it is getting increasingly clear that all of them are at the end of their tether.

“Time is running out and we need to decide quickly if we should continue in Maharashtra or relocate to another State which is more proactive with incentives,” top sources told Business Line. Gujarat is the unanimous favourite, especially when it already has in its kitty top names like Tata Motors, Ford, PSA Peugeot Citroen (which has put its project on hold) and Maruti-Suzuki.

Two-wheeler makers like Hero MotoCorp are also reportedly in the fray for setting up a plant in Gujarat. At one point, Bajaj Auto had also explored the option where the trigger was the issue of VAT refunds.

“None of the carmakers is keen on getting out of Maharashtra. After all, it is not the easiest of tasks to identify a site, set up an assembly line and plan a supplier cluster,” sources said.

The fact remains, though, that it has been an ‘exasperating wait' at a time when speed is the need of the hour.

For instance, Volkswagen wants to export more from India while building its domestic base too. The investments are ready to be made but the German automaker cannot do a thing till the VAT issue is clearly spelt out. The same holds true for M&M, GM and Tata Motors which are keen to expand capacities in an intensely competitive market.

It would be logical to assume that the companies are already examining alternative sites but, given a chance, would rather continue in Maharashtra.

“All the supporting infrastructure is in place here. However, that does not mean we will wait indefinitely. It will be the State's loss by the end of the day,” an auto sector official said.