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Maruti to rework deal with Gujarat

Vendors indicate no change in their plans with regard to the plant site

Sohini Das Ahmedabad
With Maruti Suzuki India Ltd (MSIL) changing track on its proposed Gujarat factory on Tuesday by announcing it would be built by a wholly owned subsidiary of parent company Suzuki Motor Corporation (SMC), significant changes will need to be made in the agreement it had signed with the government. The company's vendors would also need to be incorporated in the new plan.

R C Bhargava, chairman, MSIL, told Business Standard that as far as the Gujarat government was concerned, the company was confident these changes could be worked out. "A formal application would be made, notifying the government of the change of plan, and the necessary changes that need to be incorporated in the State Support Agreement (SSA). With a state like Gujarat, we are confident things can be sorted." He added there would be no change in the incentives already granted (by the state) to the company.
 

STATE SUPPORT
  • Maruti Suzuki signed a State Support Agreement with the Gujarat government in June 2012 for buying land and setting up a factory
  • The company has been offered a refund of value-added tax for 15 years, provided the amount did not exceed the company's investment in the state
  • The company was offered land at Hansalpur (around 110 km from Ahmedabad) at Rs 670 a sq m (or Rs 27 lakh an acre). The 640-acre plot, therefore, cost around Rs 172 crore

Sources in the state government also indicated while the SSA needed to be reworked extensively, it should not be a hurdle in the way of the project coming to the state. "Now, the arrangement would be more like a contract manufacturing set-up. The SSA would be reworked in that manner. As far as the land is concerned, Maruti would have to lease or rent it out to the new subsidiary of SMC and these details would need to be incorporated in the agreement,” said one.

The official, however, claimed that so far an official application from MSIL has not come in. As far as incentives are concerned, sources close to the development indicated that as of now there is no change of plan, the same incentives could be extended to the new entity as well.

MSIL had signed an SSA with the Gujarat government in June 2012 with regard to purchase of land and setting up of a manufacturing facility here. SSAs have guidelines related to payment installments, and dates of commissioning etc. Maruti has been offered a refund of value added tax (VAT) for 15 years provided the amount did not exceed the company's investment in the state. The company was offered land at Hansalpur (around 110 km from Ahmedabad) at the rate of Rs 670 per square meter (or roughly Rs 27 lakh per acre). The 640 acre plot, therefore, cost the company around Rs 172 crore. MSIL is learnt to have been making payments for the land in annual installments with a certain interest component. Furthermore, Gujarat government offers certain standard incentives to all projects which entail an investment over Rs 1,000 crore (mega projects), like waiver of stamp duty and registration fee among others.

MSIL, on its part, has indicated that the land for the project would be leased by MSIL to the subsidiary company to establish the production facility. "The rent would be determined on an arm's length basis," the company had said in a statement yesterday.

Meanwhile, MSIL's vendors indicated that there was no change of plan on their part to set up manufacturing facilities in the vicinity of the upcoming facility. Key vendors of the company including JBM, NK Minda Group, Roop Polymers among others indicated that as of now there was no change of plan for vendors as far as the Gujarat project was concerned. Bhargava too indicated that the same set of vendors would be supplying to the SMC subsidiary.

Kirti Rathod, deputy chairman of Automotive Component Manufacturers Association (ACMA), western region informed that there are about 40-50 tier-I vendors of MSIL, of which some are already present in the already established automotive clusters in Gujarat like Halol and Sanand. "While many of these companies are also expected to set up facilities at Becharaji, there have been enquiries from another 10-15 companies which do not have presence in Gujarat yet." He added that around 400 acres of land has been earmarked for vendors at Becharaji and at least 30 companies have committed to set up facilities there.

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First Published: Jan 30 2014 | 12:45 AM IST

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