Why did Tatas choose Singur?

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Chennai: A comprehensive package of incentives – subsidy on land, concessional power, a soft loan and tax paybacks – to match the benefits that Tata Motors would have got in Uttarakhand or Himachal Pradesh, was what got it to choose Singur in West Bengal for making its low-cost car Nano.

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The agreement between Tata Motors, West Bengal Government and the State industrial promotion agency – West Bengal Industrial Development Corporation – available on the corporation’s Web site, provides details of the incentives offered.

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The Government has said that it approached Tata Motors to persuade it to locate an automobile project in the State, including the project to make the small car. Tata Motors showed interest in locating the plant in West Bengal, provided the State offered fiscal incentives equivalent to the value of total incentives it would have received by locating the plant in Uttarakhand or Himachal Pradesh.

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According to the agreement, the West Bengal Government will provide Tata Motors a loan of Rs 200 crore at 1 per cent interest, repayable in five equal annual instalments starting from the 21st year from the date of disbursement of the loan. This loan will be disbursed within 60 days of signing this agreement (The company signed an agreement with the Government on March 9, 2007 for the land at Singur).

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Electricity clause

The Government will provide electricity for the project at Rs 3 a kWh. In case the tariff is increased by more than 25 paise a unit in every block of five years, the Government will provide relief through additional compensation to neutralise the increase.

The West Bengal Industrial Development Corporation (WBIDC) will provide 645.67 acres of land to Tata Motors on a 90-year lease, on an annual lease rental of Rs 1 crore a year for the first five years, with a 25 per cent increase after every five years till 30 years.

After 30 years, the lease rental will be fixed at Rs 5 crore a year, with a 30 per cent increase after every 10 years till the 60th year. After this, the lease rental will be fixed at Rs 20 crore a year, which will remain unchanged till the 90th year. After the 90-year lease period, the lease terms will be fixed on mutually-agreed terms.

The agreement says that WBIDC will provide an industrial promotion assistance in the form of a loan at 0.1 per cent per annum for amounts equal to gross value-added tax and Central Sales Tax received by the State Government in each of the previous years ended March 31, on the sale of the small car from the date the sales begin.

This benefit, says the agreement, will continue till the balance amount of the Uttarakhand benefit (after deducting the amount from the land lease rental and the soft loan) is reached on net present value basis, after which it will be discontinued.

Loan repayment

The loan with interest will be repayable in annual instalments starting from the 31st year of commencement of sale from the plant. The loan availed of in the first year will be repaid in the 31st year and so on.

WBIDC will ensure that this loan is paid within 60 days of the close of the previous year, failing which the corporation will be liable to compensate Tata Motors for the financial inconvenience caused at the rate of 1.5 times the bank rate prevailing at the time on the amount due for the period of delay.

Tata Motors and the West Bengal Government will make best efforts to maximise sale of products from the small car plant, the agreement says.

As far as the land for the vendors is concerned, about 290 acres will be leased to the vendors on payment of premium equal to the actual cost of acquisition plus incidentals, to be calculated on the basis of the total acquisition cost and other incidental expenses incurred by WBIDC or any of its subsidiaries, averaged over the total land acquired.

Lease rental

The vendors will have to pay a lease rental of Rs 8,000 an acre for the first 45 years and Rs 16,000 an acre for the next 45 years. The initial lease tenure will be 90 years, after which it will be fixed on mutually agreed upon terms.

Tata Motors will invest about Rs 1,500 crore at Singur with the vendors bringing in another Rs 500 crore. The plant was to have a capacity of 2.5 lakh units a year on a two-shift basis, going up to 3.5 lakh units on three shifts. In addition, it would have vendors and act as a mother plant for many aggregates to the tune of five lakh cars a year.

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Tata Motors, which unveiled the Nano at the auto expo in New Delhi in January 2008, suspended work at Singur on September citing the hostile environment at the site and said it was drawing up detailed plans to relocate the plant and machinery. The company was to roll out the Nano in the quarter beginning October.

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