Tato Nano Plant Location Case Study

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This paper is a conceptual research paper, which attempts to study the journey of Tata Nano’s from West Bengal to Sanad, Gujarat. In this paper the researcher used the case study method and compiled the secondary data from media reports and other articles. It is a study of the challenges faced by Tata Motors Limited, Main issues behind the shift, reason behind selecting Gujarat for establishment of the plant and benefits to state with the same. It also discusses the comparative offers given to Tata Motors Limited for establishment of their plant in Gujarat & in West Bengal.

Key Words: Tata Motors limited, Nano, Shift, Comparative Offers, Land acquisition;

Introduction:

Finally long awaited & the World’s Cheapest car is on the road. It was launched in Mumbai, India & the car is all set to hit the road by July 2009. The base model of Tata Nano would cost Rs 120,000 rupees, including road tax and delivery. The higher-level models will cost more and come with air-conditioning. Tata Nano’s one upcoming plant has moved from West Bengal to Gujarat in spite of efforts of the W.B. state government. Its new plant in Sanad, Gujarat will start delivery of Nano long awaited car from next year 2010.

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They are not concept cars, they are not prototypes,” Mr. Tata announced when he got out of the car. “They are the production cars that will roll out of the Singur plant later this year.” He also claimed it as “People’s Car”. The booking had opened to public from 9th April 2009. . Maruti 800 would face major competition with the launch of this small and affordable car, as up till date Maruti was amongst the most desirous economic car of India. It is 8% smaller and has 21% larger seating capacity than Maruti 800.

Objectives of the study:

This research paper is an attempt to study the journey of Tata Nano’s from the inception of the idea of low budget people’s car up to its availability to its end users. The areas of the study are as follows:

The challenges faced by Tata Nano to hit the road.

Main issues behind the shift from West Bengal

Reason behind selecting Gujarat for establishment of plant & benefits to state with the same

Comparative study of State’s offer for Tata Nano’s Plant establishment

The methodology used for this paper is conceptual in nature and case study method is used to compile the secondary data from the respondents.

Tata Motors Ltd.

Tata motor’s Limited is India’s largest automobile & commercial vehicle manufacturing company. It was established in 1945 when the company began manufacturing locomotives. It started locomotive manufacturing units & later expanded its operations to commercial vehicle sector in 1954 with a 15-year collaboration agreement with Daimler Benz of Germany. It entered into the passenger vehicles segment in 1991 and now ranks second in India’s in this market. Nowadays the areas of business of the company are passenger cars, passenger buses, utility vehicles & commercial vehicles.

It has its manufacturing base in Jamshedpur, Pantnagar, Lucknow, Ahmedabad & Pune.

Since its establishment Tata Motor’s has developed the following vehicles: –

Passenger cars: The company launched the compact Tata Indica in 1998, the sedan Indigo in 2002 and the station wagon Indigo Marina in 2004. Now Nano will be available from July 2009.

Utility vehicles: The Tata Sumo was launched in 1994 and the Tata Safari in 1998.

Commercial vehicles: Tata Motors manufactures a range of buses as well as light, medium and heavy commercial vehicles. The commercial vehicle range extends from the light two tones truck to heavy dumpers and multi-axled vehicles in the over-forty tones segment. Through the Tata Daewoo Commercial Vehicle Company, it offers high horsepower vehicles of 220 HP to 400 HP for dump truck, tractor-trailers, mixers and cargo applications.

Passenger buses: The company also manufactures and sells passenger buses, 12-seaters to 60-seaters, in the light, medium and heavy segments, including the Magic – a four-wheeler public transport developed on the Ace platform – and Winger – a maxi-van.

Tata Motors, Ltd. a company of Tata group takes care about the future & is committed to letter & spirit of corporate social responsibility. It focuses its concern in:-

1) Reduction of environmental pollution and regular pollution control drives

2) Restoration of ecological balance.

Ratan Tata’s dream ‘car for the masses’ Nano was unveiled in front of a packed audience at Pragati Maidan, New Delhi. The Tata Nano is currently being manufactured at the company’s Pantnagar plant in Uttarakhand in limited numbers. The new dedicated plant, at Sanand in Gujarat, will be ready in 2010 with an annualized capacity of 350,000 cars.

Challenges Faced by Nano:

Tata Nano faced many hurdles in its journey; some of the challenges were as follows:

To acquire the land

To stick to the low cost vehicle

Maintaining the quality in spite of low budget

Production on time

Issues behind the shift- Land Acquisition

The main challenge of Nano plant in Singur was the land acquisition. The difficulty of land acquisition in India is due to two factors i.e. the type of land to use & the population density over it. According to the land acquisition act, 1894 there are various issues, which became the barriers in the process of acquiring the land by the state govt. for Tatas.

Section 11 of it makes it obligatory on the part of collector to safeguard the interest of all person’s involved though they might have not appeared before him. In awarding compensation the land acquisition collector should look into the estimate value of the land, given due consideration to the other specific factors. The value of the land should be awarded within 02 years.

In Singur there are more than 1100 land holdings and out of it total 6000 families were about to suffer from this land acquisition. The Project was to be spread over 700 acres with another 300 kept aside for ancillary production.

On September 25, 2006 the first lot of compensation cheques begin to be handed out from the Singur Block Development office. About 10,000 people were involved in protest against land acquisition while about 256 of the 354 people were to be awarded compensation got their cheques. Mamta Banerjee had first resisted the acquisition of the land in 2006 by going on a 26 days hunger strike despite appeals from the Prime minister to negotiate the settlement. The whole process was under review with the Judiciary third party i.e. High court. The West Bengal on Dec. 06 claimed that 920 acres of land has been voluntarily handed over by the landowners and compensation has been accepted for 658 acres of land.

In March 07 Tata Motors finally got possession of land for its small car factory in Singur and an agreement was signed between TML and state government for leasing out 949.5 acres of land to the company for 90 years. Later on State government itself admitted that only 30% of the landowners of Singur who own 287.5 acres of land had given consent in writing, (That means 21.65% who have even collected cheques are still against this forcible land acquisition).

The state government has also admitted before Calcutta High Court that it has not been able to reach an agreement with farmers over the acquisition of around 300acres of the land in Singur They also disclosed that till April 07, Rs. 90.35 crore has been disbursed to 10,021 people for 671 acres of land. The state had so far acquired 997.11 for the Tatas small car project. It had also allotted a total of Rs. 118.95 crore to pay the compensation Rs. 0.58 crore for the bargadars. They had not disclosed about the landowners still left to accept the compensation & their satisfaction with the compensation they received from the government.

Fig.1.1 Critical Issues of Land Acquisition at Singur

In case of Compensation for land acquisition for Tata the average prices paid per care land was Rs. 12 lakh while the estimate current price per acre is Rs. 60 lakh. The land prices have zoomed after acquisition of the land by companies.

The nub of the problem was Mamta Banerjee’s demand that 300 acres land of the 997.11 acres allocated to the project should be returned to its original owners. According to Ms. Banerjee the land was taken forcibly from the farmers. While Tata Motors Limited needed all the land as one block not just for the main plant but for ancillary units, because by this way they can save part of huge expenditure with vendors and stick to the low price of the car as promised by Ratan Tata.

Ratan Tata held a press conference on 22nd August 2008, in Kolkata and announced, “We do not want to come to an area where we perceive that we are unwanted. If anybody is under the impression that because we have made this large investment of about Rs. 1500 crore, we will not move then they are wrong. I can’t bring our managers and their families to West Bengal, if they are going to be beaten, if there is going to be violence constantly, if their children are going to be afraid to go to school. after this the work of TML in Singur was suspended.

Once the Tata Motors suspended work at the plant then only Ms. Banerjee stuck to the offer that let the Tatas build the car factory on the 600 acres of land in Singur. But the vendor park can be put up in some non-fertile area nearby, and 400acres of the fertile land can be returned to the farmers. A car for common people is good but that cannot be at the cost of poor farmers.

Reason for selecting Gujarat:

Considering the unremitting zeal with which chief Minister of West Bengal Buddhadeb Bhattacharya pursued the Nano, it appeared the small car to him what the nuclear deal was to Prime Minister Man Mohan Singh. The Chief Minister of West Bengal wanted growth & jobs & thus he took all possible steps to help industrialist’s entry in to the state,

where as trinamool congress chief Mamta Banerjee wanted an issue that would pull out her out of political morasses.

In case of Nano shift, Narendra Modi, Chief Minister of Gujarat made it clear that Nano project is a feather in his cap. The credit needs to be given to Modi for the involvement and speed that his administration demonstrated in bringing the car project to Gujarat. In spite of the other state what really impressed to Tatas was the speed at which the project got the nod from the Modi administration. It took just 10 days for the Gujarat government to work out the packages for the Tatas.

Nano Project will bring much-needed high technology into the state and strengthen the local auto component industry in the SME sector.

There are certain other reasons due to which Tata Motors Limited selected Gujarat as their home for Nano project: –

Gujarat is one of the few states to have substantially higher private sector investment than public sector investment.

It has relatively peaceful Industrial relations climate.

Relatively untouched by projects over acquisition of farmland for industry.

It has thriving entrepreneurial culture and SME clusters.

Source: Projects Today/ ‘Gujarat Shining’ Business Today, November 02, 2008. pg. 44

The number of industrial projects in Gujarat were 789 in September 06, which risen up to 923 & 1384 consecutively in September 07 and in September 08.

Source: Projects Today/ ‘Gujarat Shining’ Business Today, November 02, 2008. pg. 44

The status of financial investment in Gujarat was 2,12593 crore rupees in Sep. 06 became 2,11,399 in September 07 and again raise up to 2,88,018 crore rupees in September 08.

Benefits to the state from the shift:

The Journey of Tata’s ambitious automobile project, Nano from Singur (West Bengal) to Sanad (Gujrat) clears the picture of two faces of modern India. One state in spite of all allegation and opposition has come forward to embrace the opportunity of Industrial investment where as the other state in spite of all efforts of the government and officials of Tata Motor’s Limited has refused to come out of its shell of beliefs to grab the golden opportunity of industrial investment.

After all it is benefiting to one of the state i.e. Gujarat & the benefits are as follows:

Benefit to Component Manufacturers and vendors:

Due to this shift some small-scale industries i.e. manufacturers & suppliers of car components will save about 16 lakh rupees per month as Transportation charges. The vendors in Gujarat will also be benefited by it, as they can save 2% C.S.T. on the components. Earlier the vendors had to pay Rs. 4-5 per Kg. as transportation cost. Now due to the plant in Sanad, vendors will have to pay only 0.50 Rs. Per Kg.

New Investment opportunities:

Tata’s move to Gujarat has given a perception about the state as an investor friendly state it will attract to even further investment. Although Gujarat was not keen on providing concessions to industry, it made an exception in the case of the Tata Nano project, given the competition between the states to grab the prestigious project and the opportunity to create a good investment climate in Gujarat.

Benefit to real estate Market:

Soon after the Nano project moved to Gujarat, the land prices increased there to an all time high with a 200 per cent hike in just one fortnight. The land prices in Chharodi have gone up to rs. 8-10 lakh per bigah from Rs. 3-4 lakh per bigah. In Sanad the land prices increased as Rs. 3000 per sq. yard from Rs. 2500 per sq. yard. By this also the investors will not hesitate from entering in Gujarat. Prices have also risen in surrounding areas like Nal Sarovar due to speculation that the Tatas may build residential colonies for their employees and vendors.

Additional jobs & training opportunities:

Apart from the Nano plant, the Tatas will also build a research institute in agriculture and a marine biology institute, beneficial for Gujarat and lead to further development and growth in the state. The Tata Nano project is estimated to provide 10,000 additional jobs in the state.

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The Tatas also have other plans for the Tata Nano plant. The Tatas will build electric cars and CNG variants from the mother plants. They also plan to set up an auto academy and ITIs (Industrial Training Institutes) to meet resource requirements for the mother plant.

Comparative study of State’s offer:

“Bengal is the most investor friendly state in the country. Someone had to turn that belief into reality. The investment is a reflection that the Tata group has faith in the investment climate and the government of Bengal.” This was the statement given by chief minister Mr. Buddhadeb Bhattachrya after Tatas entry into the state & the deal on the same.

In West Bengal Tatas moved to court to prevent the disclosure of the details of their deal with the state government. Tata Motors filed a suit in the Calcutta high court to prevent the details of the deal that the West Bengal Industrial Development Corporation offered them from being made public, but it was too late some details did leak out before that.17 Certain limitations are always there in collecting the information but in case of some of the offers at subsidized rate the details are as follows:

S. No.

Issue

Offers by W.B. State Govt.

Offers by Gujarat State Govt.

1.

Land Acquisition

1000 acres land (700 acres for main plant & 300 for ancillary)

1100 acres land at the market rate, subsidized as without stamp duty, registration & transfer charges

2.

Lease Rental

Rs. 01 Crore per annum over 90 years for the 997acres of land & will increase by 25% in every five years

3.

Ancillary

300 odd acres would be divided into plots for a monthly rental of Rs. 8000 per plot.

4.

Loan

Rs. 02 Billion at the rate of 1% interest rate.

Soft loan of Rs. 95 Billion at 0.1% interest rate to develop infrastructure too. It includes, roads, rails, gas pipeline, effluent Treatment Plant, electricity & water supply arrangements etc.

5.

Repayment of Loan

First installment in the 21st year of the project

It will get 20 years of time to repay the amount & it will be by adjusting Value added tax & dues of the company

6.

Electricity & water supply concessions

Concessional power at the rate of Rs. 3 per KwH,

100% exemption on electricity duty. Free supply of 14,000 cubic meter of water. Tax free round the clock electricity supply of 220KVA.

7.

Others

State will defacto refund VAT and sales tax collected on each sale of Nano.

20 Years VAT free run of Nano, In Sanad, as per the prevailing VAT structure, 15% VAT is levied15

By the numbers of offer the West Bengal would have been subsidize the Rs. 1 lakh Nano to the tone of Rs. 40,000. Same with the Gujarat state government will subsidize the prices of Nano, approx. Rs. 60,000 per car.

.Conclusion:

Tata’s pull out from Singur raises doubt about the future of more than 60 projects with an investment nearing Rs. 02 lakh crore. In case of a question to the solution of this type of issues can be the points on which the agitation is among the people. According to one of the official from Singur the farmers losses three things land, livelihood & stability” which can be assured. People also responded that till the moment the Nano factory had not created many local jobs.

As the shift had already taken place, we will wait for the Nano on the road from Sanad, Gujarat plant. It will be good for middle level customers as it is “People’s car”. The issues, which will still be a challenge with country is to manage traffic & to manage land acquisition related matters.

Related References:

http://carguide4view.blogspot.com/2009/04/tata-nano-small-and-affordable-car.html

http://en.wikipedia.org/wiki/Tata_Motors

http://www.tata.com/company/profile.aspx?sectid=a4Nd8IHyrqI=

http://en.wikipedia.org/wiki/Tata_Motors

‘All About Money’ Industry BT estimates, Business Today, September 24, 2008, pg. 71.

‘”Plotting Trouble.” Business Today, Vol. 17, issue 21, 06 Oct. – 19 Oct. 2008 p.p. 56.

Business India, September 21, 2008′ “Showdown at singur” pg. 60- 61.

“Leaving the Future” India Today, vol. 42, issue 33, 04Oct. – 20 Oct. 2008, p.p. 54.

“Modi Hoists India Inc.” Business Today, Vol. 17, issue 21, 06 Oct. – 19 Oct. 2008, p.p.44

Gujarat’s track record, “Modi Hoists India Inc.” Business Today Nov. 02, 2008, pg. 44

http://www.dancewithshadows.com/autoindia

Business India, Issue 796, 08 Sep.- 21 Sep.2008 “Showdown at singur” pg. 60- 61

‘Ground Realities’ Business India, September 21, 2008, pg. 64.

www.myris.com (11/11/2008)

’20 years Vat free run for Nano in Offing’ The Economic Times, New Delhi, 11/11/2008.

Wealth Creation or Crony capitalism’ Business & Economy Vol. 04, issue vii, 23 jan- 5 feb. 2009 pp 18.

http://www.indianexpress.com/news/each-nano-will-cost-rs-60-000-to-gujarat-exchequer-gohil/411297/

“Leaving the future” India Today October 20, 2008 pg. 54.

“Tata’s Nano moves from Singur to Sanad” Competitive Success Review, Vol. XLV, Issue 05, Nov. 2008.

“India Inc. Stuck” Business Today, Vol. 17, issue 19, 08 sep. -21 sep. 2008

“Nano’s Shift to Gujarat: Lessons to be learnt” Chartered Financial Analyst, vol. 14, issue 11, Nov. 2008.

“Gujarat Economy: The way ahead” Icfai Reader, vol. 12, issue 12, Dec. 2008

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