http://www.telegraphindia.com/1090803/jsp/bengal/story_11314325.jsp
Singur, Aug. 2: Mamata Banerjee today sprang on Singur a proposal for a railway coach factory, taking a symbolic pro-industry stride in the same spot where she had launched the agitation against the Nano.
The state government could do little but pledge support if a formal proposal was made but experts said Mamata’s plan could not be implemented without changing the law. Besides, the Tatas, who have renewed the lease, are holding the land where Mamata wants to set up the coach factory.
“I have spoken to various Union ministries and told them that if the Centre gives the land to the railways, we can set up a production unit with PPP (public-private participation),” Mamata said, flagging off a train to celebrate the agitation that had driven out the small-car project from Bengal.
Andolan Local connects Singur with Howrah.
“The land is lying with someone but no industry is coming up here,” Mamata said, iterating her demand that 400 acres from the Nano plant be returned to their original owners and the remaining 600 be used for industry.
“In Singur, we want both industrialisation and agriculture. If the Centre gives us the land, we will develop industry on 600 acres and return 400 acres to the farmers.”
Legal experts said the Centre could not “hand over” the plot to Mamata because “land acquisition is a state subject”.
“The Singur plot had been acquired by the state for the West Bengal Industrial Development Corporation (WBIDC). Tata Motors is merely a lessee and the Centre can’t interfere in this,” said lawyer Arunabha Ghosh.
“To start a new project by another owner, the WBIDC will have to auction the land after returning the lease amount paid by the Tatas and the plot will go to the highest bidder.”
To return the land to its erstwhile owners, the Land Acquisition Act, 1894, has to be changed.
Tata Motors paid Rs 1 crore this April and renewed its lease for its 647 acres for another year. Many of vendors earlier slated to set up shop in Singur have also renewed their lease.
At the commercial launch of the Nano in Mumbai on March 23, Ratan Tata had said the company had no plans to give up the land. “The factory sheds are still in place over there. We haven’t decided what to do with them,” he had said.
Official sources said if the Tatas had to give up their land, it had to be voluntary or there could be legal complications.
However, the Bengal government could not reject Mamata’s proposal. Industries minister Nirupam Sen said the government would think over it if she approached with “definite plans” and “proposals”.
“The land was meant for industrial activities and if she wishes to set up a railway coach factory, the state government does not have any objection to it. She should approach us with definite plans and proposals.”
The country’s first Kisan Vision project will come up in Singur, Mamata announced. “We have identified a two-acre plot adjoining the station. Agricultural produce will be sold here and a food-processing unit will also be set up,” she said.
Singur station has been granted Rs 50 lakh as a model station.
Monday, August 3, 2009
Mamata factory plan on Nano site- Trinamul chief sings industry tune
Wednesday, May 20, 2009
Understanding the Nano: small car, big responsibilities
Dr Dipankar Dey, associate dean. ICFAI Business School, wrote this piece for sanhati.com, a shorter version appeared in Hong Kong-based online daily www.asiasentinel.com. Here is the Sanhati piece.
Understanding the Nano: small car, big responsibilities
By Dipankar Dey (http://sanhati.com/articles/1484/)
On 23rd March 2009, Tata Motors Company (TMC) launched its much publicized small car Nano in Mumbai. As the Sanand plant at Gujarat is at its inception now, a makeshift arrangement has been made to produce 50,000 units at their Pantnagar plant. Limited numbers of prospective buyers will receive their cars after three months, in June 2009. It is reported that the basic model priced at Rs one lakh ($2500, ex-factory without transportation cost) without air conditioning will contribute only 20 per cent of the Nano sales and rest 80 per cent will be contributed by the premium models priced at around Rs 1.6 lakh.
The TMC's strategy on the Nano draws a striking similarity with the General Motors (the US auto major currently struggling for its survival) global production strategy in the late 1980s that was based on simple and flexible manufacturing plants; global sourcing of automobile parts; rapid introduction of new models; and a lean dealer network. This strategy had shown success in Europe and it was introduced in Brazil in the early 1990s, with a goal of applying it in Asia, Eastern Europe and ultimately in the United States. Later Ford and other major automobile companies also followed the same model.
In 1997 GM made the Blue Macaw Project the centipede of its Brazilian strategy. GM chose the state of Rio Grande do Sul as the site. The project revolved around a new automobile assembly plant with an annual capacity of 150,000. The plant produced a stripped-down version of the Opel Corsa, a subcompact car, with an under $10,000 price tag. Among the advantages of locating in Rio Grande do Sul were geographical proximity to the Southern cones major markets in southern Brazil, the Buenos Aires region of Argentina and Uruguay. In return for agreeing to build the $600 million plant in a lightly industrialized area, GM received a package of subsidies from the state government of Rio Grande do Sul.
The subsidies amounted reportedly to $250 million, and the tax breaks appeared to have the potential to equal $1.5 billion over a 15-year period. GM executives maintained that in the absence of these subsidies, the firm would have located the plant in a more developed part of Brazil. In 2000, the GM plant employed 1,300 workers, and locally based suppliers employed another 1,300 workers. The plant housed 20 suppliers, the most important of which were US, French and Japanese companies. GM outsourced all components except power trains, body welding, body panels, paint, and final assembly.
Similar activities were planned in the TMC's mother plant at Singur.. The main thrusts were on body welding, body panels, paint, and final assembly. Major components were to be supplied by other ancillary companies.
\In May 2006, Tata Motors had announced its decision to start an automobile factory at Singur (West Bengal) to roll out the world's cheapest car Nano. The launch of the car in Mumbai in March 2009 was an important phase in the automobile history of the world. This brief history of Nano has taught us how a large corporate house could (i) use, to its advantage, the unhealthy competition among different states to attract large capital; (ii) effectively use parliamentary politics as a business strategy to convert an internal crisis into an advantage. Politics has played an equally important role, if not more than business economics, in shaping the future of Nano.
The supportive role of the State in the expansion of large capital is a controversial and much discussed topic. This symbiotic relationship between the state and large capital had worked successfully throughout the 19th and most decades of the 20th century. In India, the Tatas did not rely much on the nascent State. They constructed their own power plants to supply electricity to their factories, managed schools, research centers, municipalities etc. To ensure steady supply of management staff, they created Tata Administrative Service (TAS) in line with the Indian Administrative Service.
Till the early 1980s, the government role was considered as regulator only. One of the major changes that Mr Ratan Tata brought about in the Tata House after he succeeded JRD Tata in the mid 1980s was the group's attitude towards government. In the changed situation, the Tatas decided to involve the government as their business partner. The group's involvement in the Karnal refinery project with Indian Oil Corporation (which did not take off), Ratan Tata's acceptance of the Chairmanship of Air India and his close advisory relationship with Rajiv Gandhi could be cited as indications of change in attitude towards the government.
The relationship between the state and the group improved over the years and during last two decades; the Tatas have succeeded in extracting substantial benefits from the state. Allocation of vast agricultural lands by various state governments to the Tata companies, say for shrimp cultivation at Chilka (1991); steel plants at Gopalpur on Sea (1995) and Kalinga Nagar (2004); automobile plants at Singur (2006) and Sanand (2008), are few such examples. There was resistance against all the above projects; many protesters were killed and none of the projects have been put into operation till date. But except in Chilka, the Tatas have not returned a single acre of land to the government/cultivators. With the passage of time, when the protest movements dwindled, the Tatas increased their grip (as seen in Gopalpur) on the land.
Singur is not an exception to this trend. Though Tata Motors has abandoned the Singur project in October 2008, till date it has not retuned the land to the farmers. Instead, recently it expressed its willingness to renew the lease agreement for another year. The Chief Minister Buddhadeb Bhattacherjee's reported comment in an election rally on 11 April (ABP, April 12, 2009), expressing his desire to return to Singur to build the Nano factory adds to the speculation that the Tata's decision to abandon the project midway was nothing but a well planned strategic retreat. They will return back to Singur at the most appropriate time.
The decision to abandon the Singur project has benefited both Tata Motors and the ruling Left Front government of West Bengal. It was a win-win situation for both the parties. In a twosome game, no one recognizes the third or fourth parties which remain beyond the fence, as silent spectators. However, in Singur, the third and the fourth parties namely local peasants and civil society organizations did not remain quiet. They have made their voices heard across the country.
Gains for Tata Motors:
The most crucial gain for TMC was to get five extra months between November 2008, when the launch was initially scheduled, and March 2009, when Nano was actually launched. These additional five months have benefited the company in two ways.
First, the production cost could be reduced. Now, the cost of production is much less compared to last year. Since January 2008, the prices of two major inputs namely cold rolled steel and rubber have decreased by 28 p.c. and 19 p.c. In addition to this, the government has slashed the excise duty from 16 p.c. to 8 p.c.. Moreover the price of crude oil has also decreased by over 51 p.c. in the said period.
Second, TMC has an opportunity to mobilize funds, at a negligible cost, by asking the prospective buyers of Nano to place deposits in advance. This has been made possible at a time when the company has been facing severe financial crisis. The Economist (March 26, 2009), has estimated that prospective Nano customers are expected to place deposits worth up to $1 billion with Tata Motors at the time of placing order for the car. The company will retain that amount, without paying any interest, for at least three months before the first phase allocation of limited numbers of cars are complete. And those willing to be considered for the second batch will be paid interest, below the market rate, after one year. Had TMCs launched Nano, as scheduled before, in the month of November 2008 at a time when the economy was worst hit, the Tatas could not have been successful in mobilizing such a huge sum of money at a negligible cost.
By July-August last year, Tata management could realise that the impact of the global recession would be severe. It may be recalled that the crude price per barrel went up to $147 in July 2008.Certainly that was not a conducive situation to launch a motor car targeting price sensitive middle-class clients. They were just looking for an excuse to delay the project and buy some time- till the economy showed some signs of recovery.
Like other steel and automobile companies across the world, the Tata companies have also been affected adversely by the super recession the global economy had been passing through for the past one year. For them, the problem got more harsh due to some expensive acquisitions in the overseas market. After the takeover of European steel major Chorus by Tata Steel, Tata Motors acquired the British auto firm Jaguar Land Rover (JLR) in June 2008, paying a hefty sum of $2.3 billion. Since then, sales has fallen 22 p.c. production has been slashed by 60 p.c. 1800 jobs have been cut and Tata Motors have pumped in $1.2 billion of working capital into JLR. As the condition did not improve, in March the company has approached the British government for a loan guarantee of $730 million. Added to this, back home, the sales of the Tata Motors heavy vehicles have fallen by 60 p.c. (may be to utilize the excess capacity, Nano is being assembled in their Pantnagar
plant).
All these factors have put the company into a severe crisis and their credit rating in March 2009 has fallen to B3 from B1. Moreover, for the first time in recent past, Tata Motors incurred a loss of $54 million (approximately Rs 270 crore) in the quarter ending in December 2008. It has been reported that this year Tata Motors faces a funding gap of at least $3.4 billion. Out of this, $2 billion has to be repaid by June 2009. During such a financial crisis, Nano has emerged as a savior.
Decision to abandon the Singur project has helped TMC extract huge concessions from the Gujarat government also. To understand the strategic move of the company, we shall have to reexamine closely some of the major political events those occurred immediately before the move. The official Left had withdrawn support from the UPA government in the center; signs of a prolonged global recession were getting prominent in every passing day and in West Bengal, the LF government, the main sponsor of the project was under severe political pressure due to pathetic performance in every aspects- political, economic and social. Civil society organizations were on the street seeking justice against atrocities of the ruling party. Competent managers of Tata Motors, through their accurate assessment of political environment and timely intervention had turned a threat into a huge advantage. Under the changed situation, keeping in mind the future plan of their dream car, they realised that Gujarat could be the only other state which could be made to compete against West Bengal. The Gujarat chief minister Narendra Modi was contacted secretly and he fell victim to the ploy immediately. Thus, Tatas succeeded in extracting huge concessions from the Gujarat government also. Probably the benefits were much higher than the prohibitively large concessions, details of which are yet to be revealed, they had obtained from the West Bengal government.
This strategy to extract maximum benefit from the competing states was not new. As observed elsewhere above in this article, in the 1990s, the US auto giants General Motors and Ford had successfully implemented this strategy to obtain maximum concessions from the provincial governments of Brazil. Analyzing the impact of such investments on local economy, G.H Hanson (2001) in his paper, Should Countries Promote Foreign Direct Investment?, had raised a very important question. He asked, if it was true that the benefits of FDI for host countries were insufficient to justify FDI promotion policies, then why did host-country governments continued to offer multinationals special treatment? According to him, there were two main reasons. One, the governments felt compelled to offer concessions given that multinationals subjected their location decisions to bidding by potential host-country governments. Second, promoting such investment, served the interests of host-country politicians. Attracting multinationals either had benefited specific constituencies, from whom politicians derived support, or fitted into the political strategies of empire-building.
The second reason cited in Hanson's analysis aptly explains the political motives of the government of West Bengal and Gujarat in siding with the Tatas in this controversial project. Tata Motors have understood accurately the political interests and compulsions of the state governments. They simply exploited such weakness to their advantage. In 2006 also they successfully implemented the same strategy before selecting the Singur site. At that time, they projected Uttaranchal as another likely contender for the Nano project. The West Bengal government out of desperation, walked into that trap and ended up offering huge economic concessions to the company.
The political compulsion of the LF government becomes more clear when one analyzes the state government's enthusiasm to attract large business houses, including foreign firms, to the state in which over 55,000 small and medium firms have been closed during last three decades. Contrary to the general expectation that the LF government would extend all kind of support to the small and medium entrepreneurs of the state, in reality, they did the reverse. The political logic is obvious. Financially strong local entrepreneurs would aspire for political power which the ruling parties in West Bengal are not willing to share with . As entrepreneurs from other states/overseas countries would remain focussed on business activities only, political risk is much lower in such cases. Maybe, due to same political reason, the number of local entrepreneurs in China is very limited. Foreign capital and transnational corporations are welcome there.
The low price of the car and its unique production strategy that was based on simple and flexible manufacturing plants; global sourcing of automobile parts and rapid introduction of new models have compelled the management to follow an innovative promotional strategy to establish the Nano brand within a very short time , across the country, at a limited budget. Seven months delay in the launch of the car and the associated controversy the project has generated due to the abandonment of the Singur plant, has helped Tata Motors achieve that objective. The production model remains an area of concern for them. Tata motors dream car has a striking similarity with another product, the IBM PC, launched by IBM in 1981. Except for its name, IBM had contributed nothing in that product which had brought in a revolutionary change in the economic and social activities across the world. In that PC, all critical components were supplied by other companies like Microsoft, Intel and Seagate . But clone makers realised trick quickly. They purchased the critical components from the original suppliers, assembled the same as per the standard set by IBM and flooded the market with low priced IBM Compatible PCs. Thus IBM failed to retain its control on the PC market.
Most of the critical components of Nano will be supplied by other companies.. For example, BOSCH will supply the engine, alternators, brakes etc. LUCAS-TVS;TACO;RICO;Sundaram Clayton;Rasandik et al will provide various other critical components.(Hindu Business Line March 23,2009). In future any expert mechanic may assemble a Nano Compatible small car procuring the critical components from the market.
Apprehending this, Tata Motors has reportedly applied for patent protection for over 37 inventions and innovations linked to its Nano. Industry watchers have interpreted this as an aggressive move to protect the low-cost car against imitation.4 But mere patent protection may not be sufficient to stop imitation at the local level. So the Tatas have opted for an aggressive strategy and tied up with 15 national banks to market their dream car. And to establish the brand with a limited budget, from day one they have consciously relied more on fuelling controversies than spending millions of rupees on advertisements. During last one year, the attention Nano has received from the press and political parties was unbelievable. Thousands of tons of news prints and hundreds of hours of prime television and radio time in all the national and regional languages have been used for Nano related news and stories. The more the controversies, the more the mileage for the Nano brand. The timing of the launch on 23 March, just before the election, was also meticulously thought of. Nano has emerged as a major election issue in Gujarat and West Bengal- more in case of the latter. The sarcastic remarks by Mr Ratan Tata, an urbane gentleman , during the launching ceremony of Nano should be analysed as an tactical move to fuel and sustain the Nano controversy.
Gains for the ruling left front The ruling LF has made Nano as one of its main election issues. As it has no other catchy issue to sell , Nano is eloquently in use in election speeches, slogans, posters ; graffitis et al. All its major failures during the last three decades- be it health care; education; industrialization or agriculture- have become secondary. The opposition political parties , to be precise, the leader of the opposition Ms Mamata Banerjee has been made the scapegoat for all the failures of the government and she has been identified as the main culprit for the non fulfillment of the Chief Minister's dream project at Singur. To exploit the general weakness of Bengali middle class towards the losers ( a la Debdas), Mr Buddhadeb Bhattacharjee is being projected as a "tragic hero“ a victim of grand conspiracy . How far this strategy would be successful is not known but Nano and Singur, rather abandonment of Singur by Nano, has given some talking points for the ruling parties to speak in the election rallies.
Future of Singur Plant
Most probably, Tata Motors will be back to Singur. It was abandoned only to be back again. If the LF emerges politically stronger after the election, it will return early and will insist on granting SEZ status to the project. If the election result indicates Mamata Banerjee coming to power in the next assembly election scheduled within a year, Tata Motors will agree to restrict the plant size to 600 acres. Rest 400 acres will be returned to the farmers. It should be remembered that Nano's next destination is Europe and then to Southeast Asia via Thailand. In it's expansion plan Singur has an important role to play.
While Ratan Tata is banking on his dream car to bail out Tata Motors from an unprecedented financial crisis, The WB CM is also relying heavily on his unfulfilled ˜dream project" at Singur to sail through the political challenges his government is facing at present. It seems that the small Nano is overloaded with large responsibilities. Will it be able to bear the load?
Sunday, April 12, 2009
The right right
http://www.downtoearth.org.in/editor.asp?foldername=20090415&filename=Editor&sec_id=2&sid=1
The world’s cheapest car, the Nano, rolls out in India this week. Manufacturer Tata Motors says it will change the way Indians drive, for the inauguration places the personal car within the reach of people who once could only dream of owning one. Indeed, the Nano has been marketed as an ‘aspiration’—the right of every Indian to a car. No quibble here. There is no question an affordable car is better than an expensive one; or that a small car, being more fuel efficient, is better than a big one. No question, too, that every citizen of India has as much right to a car as every citizen of America, where vehicle numbers are obscene: some 800 vehicles for 1,000 people (old and young) against our measly 7 per 1,000 people (urban and rural).
Let me roll out my concerns. The issue is not the Nano. The issue is all cars and whether cars still are the future of the world economy. Over years, in different continents, vehicle manufacturers invented and re-invented this appliance for self-mobility, for different market segments. In India, two-wheeler manufacturers can rightly claim that over the 1980s they, too, provided technology innovation and affordable mobility for vast numbers. They can also claim they were the first to break the class barrier. Then, in the early 1990s, when Sanjay Gandhi’s people’s car, the Maruti 800, hit the roads, gender barriers also fell—this was a car women could drive and it gave new freedoms. No question, therefore, of what Nano will bring to new owners.
But this launch comes at a time when the production of personal vehicles itself is becoming old-economy. It is not surprising the car industry has become the first big dinosaur of the 21st century. Every country today is working to bail out its automobile industry. The big four companies are still on the brink of closure. There is huge over-capacity in the world of cars—sales are down and the industry is bleeding. You might think it is a temporary phase: cars will zoom again, as recession blues turn pink. But this is far from the reality.
The fact is cars could only make it big in the old economy because they were highly subsidized, or incentivized through cheap bank loans. If people could not afford the next car, the bank worked overtime to make sure the loans kept rolling, even if that eventually broke the bank’s back. But that is the past. The future, too, will not be too different. The bank might recover, but the cost of the fuel to drive the dream vehicle will not. Oil experts will tell you black gold prices will rise again, when the world economy re-boots.
Add to this what can only be called the mother of all subsidies—the free-ride personal vehicles have got, in the world, to emit large amounts of greenhouse gases and pump them into a common atmospheric space. As the rights over this ecological commons will be determined, as they must, carbon dioxide emissions from the cars of the rich will have to be limited and taxed. This will cost. It will make driving more expensive.
The global automobile industry knows it is not our future. It is our past. Unfortunately, this message has not yet come home. Unlike the car-saturated West, we still have a large number of people who are potential buyers. But the fact is in India, because of the even greater price-sensitivity, personal vehicles are viable only if they are subsidized to the brim.
Take the Nano. My colleague Chandra Bhushan has calculated the incentives rolled out by Narendra Modi’s Gujarat government amount to a fat write-off—as much as Rs 50,000-60,000 per this Rs 1 lakh car. In other words, its cost is so low only because the state has doled out a largesse. Every past and present automobile has got this benefit (more or less). We can afford a car because our government pays for it. We can also afford it because we are not asked to pay the price of its running—the tax on cars is lower than what buses pay in our socialist country. We do not pay for its parking, a cost, which, if added, would make us think twice before we bought or drove our new dream vehicle, whatever the variant.
As the Nano rolls out, think of how we subsidize the car and tax the bus. Public buses pay taxes as commercial passenger vehicles, each year and based on the number they carry. In many states, they pay over 12 times more tax than cars. Think of the public transport bus service in your city and ask how much of its revenues go in taxes: half, in most cases. Think also that the same Tata company, that has managed to roll out the car of our dreams in record time, does not possess the capacity to build the buses cities need.
Such an old-economy approach becomes completely perverse when one considers that already today, and definitely tomorrow, the greater proportion of people who are or will commute are using and will continue to use public transport—a bus or a train. Today, as much as half of rich Delhi takes a bus, and another one-third walk or cycle because it is too poor to even take the bus.
Think again about the car inequity in India—7 per 1000 people. Can the government write off the costs—Nano style—so that all can buy the car? Can the government pay for our parking, our roads and our fuel, so that all can drive the car? If not, then is this the right right at all?
The issue, then, is not the right to own a Nano. The issue is the right to a slice of the public subsidy so that everybody has the right to mobility. There is no other right.
— Sunita Narain
Wednesday, April 8, 2009
Nano frenzy
Hindustan Times
Singur Drove Nano away, now it wants to drive it
They want to ride the Nano because they want to show to their pro-farming leaders what they have missed.
Congress worker Ranjit Chatterjee was in a hurry on Thursday. He was not in a mood to miss even a second to apply for the Nano. He went to the State Bank of India branch here early in the morning to be the first to procure the application form.
He reached even before the bank had opened.
“Nano means technological advancement. Nano means moving forward. So, I have decided to gift it to my nephew who is studying computer engineering,” said Chatterjee, expressing sorrow over the Nano project's departure from Singur.
But Arun Das, the Congress candidate from the Singur Assembly seat in the 2006 elections, was unhappy even though he managed to procure an application form. He had wanted to be the first. “I was one of the first persons to give up my land for the Nano project. Though the plant is no more in Singur, I wish to be the first person from Singur to bag the Nano,” Das told Hindustan Times after receiving his application form.
“I want to ride the car because I want to show to our pro-farming neighbours what they have missed,” Das said.
According to State Bank of India sources, 25 application forms were distributed from its Singur branch. “The response was good. We expect more applicants in the days ahead,” P.K. Chandra, branch manager, said.
However, there was not much enthusiasm among general villagers in Singur about the Nano.
Peasants, who had protested against the Tata plant in Singur and had led to the project's withdrawal from there, however, seemed unperturbed. “It means nothing for us. Are we going to eat it?” Sahadeb Das, a septuagenarian from Khaserveri village, said.
Indian Express
Many Nanos rev up to roll into Singur
http://www.expressindia.com/latest-news/many-nanos-rev-up-to-roll-into-singur/445346/The small wonder wows Kolkatans too, with huge crowds turning up to book the car
The Nano may not have rolled out from Singur, but it is certain to roll into the area in good numbers.
The response was overwhelming from the farmers and other residents of the area on Thursday, when the booking opened for Nano.
Naba Kumar Pal, who lives at Beraberi Dakshinpara in Singur, which was once the hotbed of the agitation against the land acquisition, was among the many who booked a Nano today.
According to officials of the banks collecting booking forms in Singur, there was an incredible response from people, which included the likes of Zairul Haque, who had given up his land for the Tata project.
In Kolkata too, the response was great. Twenty-one-year-old Divya Hans, a resident of Russel Street, is praying hard she is among those to get the car in the first phase of Nano allotment. Incidentally, this is going to be her first car, and her mother wants to gift the small wonder when she finishes her college.
On Thursday, Divya rushed to the nearest Tata Lexus showroom at AJC Bose Road and was busy filling up forms with her mother Seema Hans. “This is my first car. I hope I get selected in the first allotment. My mother is buying it since I will be completing my college this year. This car is good for girls as it is compact, small and looks elegant,” said the BA final-year student.
Alauddin Master, who has come all the way from Hooghly to book his Nano, is waiting to own his first-ever car at the age of 47. With his wife and daughter, Alauddin, a primary school teacher, thanks the Tatas for giving people like him a chance to own a car which is reasonably priced.
“This is the first car for me and my family. Its affordability is the main reason why I want to book it. My daughters are more excited than me. For people like us, such cars priced at such rates, are a blessing. Now I can proudly drive around in my brand new car, which I hope to get soon,” Alauddin said.
At showrooms like Tata Lexus Motors and KB Motors, the crowd said it all.
At the SBI outlets, the response was mixed with only a few centres getting drawing people in huge numbers, but officials expect it to swell from Monday. “Till 7 pm, there has been a very good response, with almost 103 bookings at our outlet alone,” said an official of the Tata Lexus showroom in the city.
For some like Poulami Majumder, the Nano booking has given her an excuse to learn to drive. Newly-wed Poulami was seen preparing to enroll herself with a driving school while her engineer husband, Mainak, was busy booking the car for his wife.
“My husband often goes on tours. He is gifting me a Nano, which I want to drive,” said Poulami, her excitement written on her face.
http://www.telegraphindia.com/1090402/jsp/calcutta/story_10758021.jsp
Nano champion books ‘dream’ car | |||||||
| MEGHDEEP BHATTACHARYYA | |||||||
Palash Mukherjee, 38, had dreamt of seeing his hometown, Singur, become an icon of Bengal’s industrialisation. But the dream was dashed with the Tata pullout last year. On Wednesday, the member of the Nano Bachao Committee had to be content with becoming one of the first to book a Nano in Calcutta. Mukherjee, a small-scale trader in medicines, left his Kamarkundu home in Singur early on Wednesday and took the 8.45am Burdwan-Howrah local to reach the city at 10am. He was one of the first to queue up outside a Tata Motors showroom in south Calcutta. “I couldn’t hold back my tears when I first touched the Nano. It’s a lovely car. It’s a dream come true but the dream isn’t ours anymore,” he told Metro. “But the joy in booking my first car fades into insignificance whenever I think of the deserted Singur factory,” he added. Mukherjee’s family had willingly given up around four bighas for the project and collected a cheque for Rs 11 lakh. “I felt proud that a part of the mother plant would come up on my land. We grew a little rice on our land but were ready to forego it for the small-car project,” Mukherjee said. “My cousin and I were involved with the factory canteen and also in supplying building material to the site. Those were the happiest days of our lives,” he sighed. Then, of course, Mamata Banerjee and Krishi Jomi Jeebika Rakkha Committee happened and the dreams ended. Mukherjee is one of the founder-members of the Nano Bachao Committee — formed a day before the October 3, 2008 pullout — and is its working secretary. He was also a part of the delegation that met governor Gopalkrishna Gandhi and chief minister Buddhadeb Bhattacharjee last year to try and save the project. “I begged with the governor. I did everything possible,” he said. But Mukherjee hasn’t given up on the Tatas yet. “The situation in Singur has improved since October. Ratan Tata is socially responsible, he won’t let us down. Security can’t be the sole issue, otherwise he would’ve closed down the Taj Mahal hotel in Mumbai (after 26/11),” he pointed out. So why was Nano his choice for the first car? “The Singur emotion overrides everything else. Also, it’s a great car, affordable for people from the lower-middle class. I can finally discard my old motorcycle and take my family out in our own car,” he smiled. http://www.telegraphindia.com/1090410/jsp/frontpage/story_10802398.jsp
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Monday, April 6, 2009
Have Nano, will travel
Have Nano, will travel
http://www.thestatesman.net/page.arcview.php?clid=4&id=282245&usrsess=1
The statements by three protagonists of the Left Front government’s industrialisation overdrive during the past three weeks tend to confirm the suspicion that there are wheels within wheels in the Tata Motors’ small car project at Singur that ended in a fiasco. It was believed that a full stop had been put to the venture after it was shifted to Sanand in Gujarat, but it seems the murky automobile saga is not yet over.
First, let’s examine how the three ~ chief minister Buddhadeb Bhattacharjee, industries minister Nirupam Sen and principal industries secretary Sabyasachi Sen ~ by their statements sought to create an impression that they were talking at cross-purposes. But the way things unfolded during the past few days it became clear that the three were working to a meticulous plan.
It was Mr Bhattacharjee who, rounding up the debate on the Governor’s address for the Budget session, told the state Assembly that no part of the acquired land at Singur would be returned to the farmers as was being demanded by the Trinamul-led Opposition. He asserted that he couldn’t just betray the farmers of Singur by not setting up industries on the land acquired from them. He announced that the process of setting up industries on the land had started and it was likely to be completed in about a year.
The state government, he clarified, would, during this period, go through the motions of getting the land back from the Tatas who were given it on lease, while the Tatas wold move away whatever equipment they had installed there. In other words, the chief minister told the Assembly that the Tata episode at Singur was over for good.
Then came the dramatic launch of the “wonder car”, Nano, in Mumabi. Within minutes, the state industries minister called a Press conference to bemoan the loss of the Nano project. He squarely blamed the Trinamul and its allies for having brought this “misfortune” to the people of West Bengal, and asked why the LF government was accused of not being transparent in its deal with the Tatas.
He even asked “intellectuals” and social activists, who had put the state government in the dock for the deal why they were not seeking information under the Right to Information Act on the Gujarat government’s deal with the Tatas for the relocated project at Sanand.
The fact is, it was the LF government which had blocked every attempt to seek information on its deal under the RTI Act.
Nano has been turned into a major election plank for the LF with which it castigates the Trinamul Congress. The abortive venture is being projected by the LF as an example of Trinamul’s anti-development and anti-people politics. Hence, the launchng of Nano gave the LF’s Lok Sabha poll campaign the much needed extra firepower to slam Trinamul.
When one thought the remarks of the chief minister and the industries minister were merely part of poll rhetoric and a desperate attempt to turn public opinion against the Trinamul, which had already reaped huge political dividends from the Singur and Nandigram turmoil, the principal industries secretary used the safety and distance of Kuala Lumpur to announce that the Tatas are to stay at Singur and that West Bengal would be the second assembly line of Nano if only the state had been denied the pride of place of being the first stable of the small car.
For the first time, the principal industries secretary disclosed that Tata Motors had plans to produce Nano from four factories in the country. All along it had been bruited about that not an inch of the 997 acres could be returned to the agitating farmers as the project area had been conceived to be large enough to accommodate a whole automobile cluster so that Nano could be made available at the unbelievably cheap price of Rs 1 lakh.
The principal industries secretary had once even sounded grateful to the Tatas for their “sacrifice” of Rs 16,000 for each car they would produce as they would have got this money by way of sales tax exemption had they set up shop in Uttaranchal!
All these reveal that the Tatas must be regretting their decision to move out of Singur. This implies the undisclosed benefits that they were offered by the state government were too great to be thrown away. The Marxists lent their voice to Tata Motors’ inflexible demand for the entire 997 acres at Singur because conceding Trinamul’s demand for return of 400 acres would have been too big a political price for them.
Now, perhaps business is trying to get the better of politics.
Trinamul would let the Singur small car project be revived only if it comes up on 600 acres and the rest of the land is returned to the unwilling farmers from whom it had been forcibly acquired. This has been their stand from the beginning.
If the Marxists accept this stand and hope to make whatever political gain is possible from the actual production of cars in the state, Singur can be the second address of Nano as wished by the principal industries secretary.
Thursday, December 4, 2008
Tata bid to shield ‘secret’
http://www.telegraphindia.com/1081203/jsp/bengal/story_10199470.jsp
Tata bid to shield ‘secret’ |
| Calcutta, Dec. 2: Tata Motors moved a writ petition in the high court today challenging the state information commissioner’s decision to read out the entire agreement between the company and the West Bengal Industrial Development Corporation (WBIDC) for the Singur plant in an open court. The company’s lawyer, Samaraditya Pal, told the court: “If the entire agreement is made public, the concept of trade secret will be hard hit.” In mid-September, Tata Motors had moved court against the WBIDC’s decision to post parts of the agreement on its website following the commissioner’s order. The court had then asked the commissioner to re-hear the case and allow Tata Motors to be a party to it. The company had submitted the agreement to the commissioner in a sealed envelope for its hearing, but the official decided to read it out in its court, prompting the Tatas to move the high court. They also challenged the Right to Information Act while demanding a stay on the decision. The case will be heard again on Friday. |
Wednesday, November 12, 2008
Unconfirmed reports about the Tata Nano plant in Gujarat
| Publication: Times Of India Ahmedabad; | Date: Nov 11, 2008; | Section: Front Page; | Page: 1 |  |
Deal is out: Win-win for Tata, Gujarat TIMES NEWS NETWORK
Gandhinagar/Ahmedabad: If this is the deal, it is a win-win situation for both Tatas and Gujarat. A loan of Rs 9,570 crore and that too at an amazingly soft 0.1% simple rate of interest. That’s the big sweetener along with other carrots that the Gujarat government is understood to have doled out to draw Tata’s Nano project to Gujarat.
This, as per a document circulating in Sachivalay on Monday which the Modi administration refused to either confirm or deny was authentic. The government has denied the information sought under the Right to Information Act to the media.
If the document is official, it is a deviation from Chief Minister Narendra Modi’s hard stance on sops. But then look at it another way. Tatas need only Rs 2,900 crore for setting up the Nano plant, including the relocation cost of Rs 700 crores. The remaining Rs 6,670 crore will be spent on infrastructure development, including roads and rail, gas pipelines, effluent treatment plant, electricity, water and all that goes in the name of providing infrastructure to the Nano plant.
This infrastructure will be of use not only to Nano but to fuel the CM’s vision of turning Gujarat into a global auto hub, as more players follow the Nano trail from Singur to Sanand. It is just that Modi is picking up the bill first and Ratan Tata is paying back in easy instalments spread over 20 years. The document is believed to have been put before the Cabinet for approval. Just to give an idea about the size of the loan, it would be a quarter of Gujarat government’s annual budget of Rs 40,000 crore. Tatas have got their share too. They get a 100% exemption on electricity duty in addition to a concessional power tariff. The 1,100 acre land comes highly subsidised without any stamp duty, registration and transfer charges. The payment for land would be made in eight equal annual instalments at a compound interest of 8% per annum.
THE DEAL
Tata wants only Rs 2,900 cr for Nano plant
Infrastructure cost of Rs 6,670 cr also billed to Tatas
Repayment of Rs 9,570 cr loan @ 0.1% over 20 years
THE SWEETNERS
100% exemption on electricity duty
Concessional power tariff
1,100 acre land comes cheap
No stamp duty, registration and transfer charges
Payment for land in 8 equal annual instalments How the Nano deal is structured
Gandhinagar/Ahmedabad:
The soft loan of Rs 9,570 crore that the Gujarat government has offered to Tatas will have to be repaid by them in 20 years but the repayment schedule will be linked to the VAT outgo on production capacity of 2.5 lakh cars in first phase.
For first four years, Tatas will have to repay the state government at 200% of the gross VAT payments per month. Estimates are that Tatas will have to pay an annual VAT of Rs 375 crore to the government based on its declared phase one annual capacity of 2.5 lakh cars. This means, the company will have to pay three times this amount or Rs 1,125 crore to the government as its loan repayment for the first four years.
Thereafter, repayments will reduce to 150% of its VAT payment till the state government recovers 150% of the proposed Rs 2,900-crore investment that Tatas will put up in phase one. This repayment will further come down to 100% of the VAT payment over the following years.
Various infrastructure facilities to be provided by the state government to Tatas include construction of a two or four-lane road connecting the project site, construction of a natural gas pipeline to the site, a 200-kva power supply, a 14,000-cubic metre per day water at the project site as well as facilities for waste disposal.
The state government has also promised to provide facilities for development of a ‘Tansportnagar’ on a publicprivate partnership for loading/unloading, lodging and boarding and other facilities in addition to providing 100 acres of land near Ahmedabad for a township at a later stage.
The leak of details of the sops being offered to Tatas, which has been a closely guarded secret, is understood to have set off a scramble within the CMO to find out how the document got leaked. The note was prepared by state industries department on the basis of the MoU with Tatas to get it approved by the Cabinet.
Monday, October 20, 2008
Hidden Costs of the Tata-Singur Agreement
http://sanhati.com/front-page/987/
By Dipankar Basu, Sanhati.
The Tata Group of Companies is one of the largest business conglomerates in India today with about 100 large companies in its fold. With the might of the Indian State firmly behind it, monopoly capital in India has started a move to aggressively acquire foreign assets. In the last few years, the Tata Group has been leading this acquisition spree on behalf of Indian big capital, making forays not only in Asia and Africa but also in the heartland of world capitalism: USA and Europe. Let us briefly take a look at the record of the Tata Group with regard to foreign acquisitions.
In January 2007, the Tata Group pulled off India’s biggest ever takeover of a foreign company to buy Anglo-Dutch steel-maker Corus for $12 billion; this acquisition made the combined entity (Tata-Corus) the world’s fifth largest producer of steel. In March 2004, the Tata Group acquired South Korea’s Daewoo Commercial Vehicle Company for $102 million; this was followed by the acquisition of a 21 percent stake in Spanish bus maker Hispano Carrocera for $18 million with an option to pick up the remaining stake at a later date. Around the same time, Tata Technologies, another company in the Tata fold, which provides automotive engineering and design services, bought Britain’s Incat International for $53 million.
Tata Consultancy Services, which was earlier a division of Tata Sons and a rising star in the Tata Group, has been among the most aggressive shoppers for foreign companies. It has acquired six companies in the past few years, with the net value of the deals close to $100 million; these include FNS of Australia, which was acquired for $26 million and Chile’s outsourcing major Comicrom, which was bought for $23 million. When the Tata Group acquired the former state-run, international telecom carrier, VSNL, a few years ago, it was on it’s way to becoming a major telecom player in the global markets. To enhance it’s position, it acquired undersea cable company Tyco of the US for $130 million, Internet service provider Dishnet’s India division for $64.28 million and international telecom service provider Teleglobe of the US for $239 million.
Following its acquisition of Hindustan Lever Chemicals, Tata Chemicals was on the lookout for a steady supply of phosphoric acid for its newly acquired plant at Haldia, West Bengal. Accordingly, it took over two overseas companies for a total value of $215 million: Indo Maroc Phosphore of Morocco in March 2005 and Brunner Mond Group of Britain in December 2007. Morocco, by the way, produces over 50 percent of the world’s rock phosphate.
In 2000, Tata Tea bought British giant Tetley for a $407 million, and started looking for similar deals to strenghthen it’s global position in the tea and related drinks business. This search led to acquisition of 33 percent stake in the South African company Joekels Tea Packers for an undisclosed amount and 30 percent stake in the US-based favoured water manufacturer Glaceau for $677 million, the acquisition of the US-based Good Earth Corp for $32 million and acquisition of the Czech Republic’s firm Jemca for an unknown amount.
India Hotels, the hotel branch of the Tata Group, acquired several hotels abroad for $121 million in the past few years. It is reported to have set aside $100 million for future acquisitions in Europe, the Middle East, Asia and the US. In December 2006, it had acquired W, a hotel at the Woolloomooloo Bay in Sydney; it was followed by the taking over of the management of The Pierre, a luxurious landmark hotel on New York’s Fifth Avenue. India Hotels, which runs the Taj Group of hotels, has 39 hotels in India and 18 worldwide. A recent acquisition of India Hotels was Campton Place Hotel in San Francisco
This is not a complete list; it is just a representative list of the Tata Group’s recent foreign acquisitions. It is only meant to provide some ballpark figures about the amount that the Tata Group has spent in the last few years in expanding it’s business abroad and in acquisition of costly strategic corporate assets. This decidedly incomplete information about the Tata Groups `acquisition spree’ is also meant to serve as an introduction to the agreement that was recently signed by the West Bengal Government and Tata Motors Ltd. (TML) for setting up `a manufacturing Plant for Automobile Products’ in Police Station Singur of District Hoogly in West Bengal. If we add up the figures for Tata Group’s overseas acquisitions, we arrive at a rough figure of $14,062 million, which converts to roughly Rs. 56,248 crore (using an exchange rate of Rs 40/$).
Of course what this implies is that a corporation which can invest more than Rs. 56,000 crores for acquisition of foreign companies requires the financial support of India’s taxpayers to set up a plant in India!
Because that is what the recently concluded agreement between the TML and the West Bengal government boils down to. Take point 7(a) of the agreement as an example. This refers to the loans that the WBIDC will give to the TML in the form of tax holidays for 30 years (i.e., TML will not have to pay the usual taxes to the WB government for about 30 years). The loan will be essentially at a nominal interest rate of 0%, which is just another way of saying that the TML gets a loan at negative real interest rates (i.e., negative of the annual rate of inflation). So, in real terms the WBIDC will not only give a loan to the TML but will also pay interest to TML for the loan that it has given to the TML! From the perspective of TML, it would be difficult to think of a better example of `having the cake and eating it too’. But make no mistake. This largesse to the corporate sector is essential if we are to embark on a path of industrialization. Or so the West Bengal government would have us believe.
The last part of 7(a) seems even better. It says: `WBIDC will ensure that the loan under this head is paid within 60 days of the close of the previous year (on 31st March) failing which WBIDC will be liable to compensate TML for the financial inconvenience caused @ 1.5 times the bank rate prevailing at the time on the amount due for the period of such delay’. What does this mean?
It means that if the WBIDC is not able to make the loan to TML within 60 days of the close of the financial year, it will penalise ITSELF by compensating TML at 1.5 times the bank rate. Wonderful! And what is the interest rate charged on the loan? 0%. Fantastic. What if TML is not able or willing to pay back the loan? Doesn’t matter. WBIDC will move on. There is no mention of any penalty that might be slapped on TML for failure to pay back the loan (principal or interest)! Any collateral? No. This is `prudent banking’ at it’s best! But make no mistake. This novel and ultimately unbeatable form of prudent banking is essential if West Bengal is to embark on the path of industrialization. Or so the West Bengal government would have us believe.
But there is more. 7(c) of the agreement says: `The West Bengal Govt. will provide TML a loan of 200 crores @ 1% interest per year repayable in 5 equal installments starting from the 21st year from the date of the disbursement of the loan’. This loan, moreover, `will be disbursed within 60 days of this agreement’. This loan will not only cover the payments that TML has to make for the 645.6 acres of land that has been given to it by the government but also cover it’s other possible costs of setting up the plant and starting operations; and the real interest rate is again negative! Then there is the `virtual gift of 650 acres of prime land to Tata Housing Development Company (THDC) in Rajarhat New Town and in the adjoining Bhangar Rajarhat Area Development Authority for building an IT and residential township along with WBIDC as a partner‘, which was portrayed as `infrastructural support’ for the Singur project!
It is important, therefore, for us to recognize the true character of agreements like the one `struck’ between the TML and the West Bengal government. It is important to understand how such `agreements’ look like under a neo-liberal regime. It is important for left and progressive activists, but also the concerned citizens, to realize that all such agreements essentially are geared towards the State effectively subsidizing capital with the revenues earned from direct and indirect taxes, which anyway the corporate entities always try to avoid paying. As has been demonstrated, the Tata Group has enough resources to buy out European and US firms, but when it comes to `industrializing’ a poor state like West Bengal, it requires soft loans (with effectively negative interest rates) and other subsidies like tax exemptions to even consider making `investments’. One must ask the functionaries of the West Bengal government whether this is industrialization or exploitation? It seems to us that the entire TML-Singur project is a net loss for the people of West Bengal. This is simply because the losses are direct, immediate and tangible (with the money going out of the exchequer, revenue loss in terms of tax rebates, loss of agricultural land and loss of livelihoods) whereas the gains are intangible and at the moment residing in the realm of possibility (possible employment generation, possible investment-friendly image and what not).
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Agreement between Tata Motors Ltd., Government of West Bengal and WBIDC
1. Tata Motors Ltd. (TML) was intending to set up a manufacturing Plant for Automobile Products including “Tata Small Car” to manufacture 250,000 cars per annum on 2 shift basis which could be expanded to 350,000 on 3 shift basis. In addition, it would have several Vendors and act as a mother plant for many aggregates to tune of 500,000 cars. In this connection, TML was considering locating the plant in the States of Uttarakhand/ Himachal Pradesh in view of the fiscal incentive package for the rapid industrialization being made available by the Govt. of India to new Industries in these States which has been attracting a large number of industries to these States. The incentive package in Uttarakhand/Himachal Pradesh consists of:-
(a) 100% exemption from Excise Duty for 10 years.
(b) 100% exemption from Corporate Income Tax for first 5 years and 30% exemption from Corporate Income Tax for next 5 years.
2. The Government of West Bengal (GoWB) is keen to take appropriate steps for rapid industrialization in West Bengal and in this connection wanted to attract some major Automobile Projects to the State. The Government of West Bengal approached TML to persuade them to locate an Automobile Project including the project to manufacture “Tata Small Car” in West Bengal. TML showed interest in locating the plant in West Bengal, provided the State gave Fiscal incentive equivalent to the value of total incentives it would have received by locating the plant in Uttarakhand / Himachal Pradesh. GoWB offered to match the financial incentives in equivalent terms and invited TML to set up the Small Car plant in West Bengal entailing investment of over Rs. 1500 crores by TML. In addition, Vendors supporting the project are likely to make further investment of over Rs. 500 crores.
3. Since then numerous discussions have been held and based on this understanding, GoWB proceeded with identification of various lands for this mega project. Land of approximately 1000 acres chosen in P. S. Singur of District Hooghly was finalized with TML. West Bengal Industrial Development Corporation Ltd. (WBIDC) commenced the process of acquisition of this land. The process was completed with the Declaration of Award under Section 11 of the Land Acquisition Act, and thereafter WBIDC has obtained mutation of ownership in its name in the Record-of-Rights, and conversion of usage of the land from agriculture to factory.
4. WBIDC is in possession of 997.11 acres of land, which has been acquired under the Land Acquisition Act. Out of this, an area admeasuring 645.67 acres will be leased to TML for setting up the Automobile Project including the small car plant, while an area admeasuring 290 acres will be leased to the vendors to this Automobile Project approved by TML (ancillary and component manufacturing units), 14.33 acres will be handed over by WBIDC to WBSEB only for construction of 220/132/33 KV substation and the balance admeasuring 47.11 acres will be used by WBIDC for rehabilitation activities for the needy families amongst the Project affected persons.
5. The terms of lease to TML for the 645.67 acres of land for the mother plant are described below. In addition, WBIDC will provide on lease 290 acres of land to the Vendors selected and approved by TML 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 expended by WBIDC or any of its subsidiaries (duly certified by its auditor) averaged over the total land acquired. The lease rental payable per year per acre by the vendors will be Rs. 8000/- per acre for the first 45 (forty five) years and Rs. 16000/- per acre for the next 45 (forty five) years. The initial lease tenure will be 90 years. On expiry of 90 years, the lease terms will be fixed on mutually agreed terms at that point of time.
6. The parties also discussed mutually to finalise the package of incentives required in order to enable GoWB to fulfill its commitment to match in equivalent financial terms the fiscal incentive foregone by TML in Uttarakhand. The Net Present Value (NPV) computation of benefits that the project would have received in Uttarakhand is attached in Annexure I which is agreed to by all the parties. Sample computation of benefits in West Bengal with stated assumptions is given in Annexure II which is accepted by all parties as agreed basis of computation. The NPV is calculated @ 11%.
7. Accordingly, it is finally agreed, in supersession of all previous decisions and agreements in this regard, that for this mega project, the fiscal incentives under Industrial Promotion Assistance in terms of the West Bengal Incentive Scheme (WBIS 2004), assistance towards land cost and interest subsidy in the form of a loan against a quantum of the term loan to be taken by TML for this project will be offered by GoWB as follows:-
(a) WBIDC will provide Industrial Promotion Assistance in the form of a Loan to TML at 0.1% interest per annum for amounts equal to gross VAT and CST received by GoWB in each of the previous years ended 31st March on sale of “Tata Small Car” from the date of commencement of sales of the small car. This benefit will continue till the balance amount of the Uttarakhand benefit (after deducting the amount as stated in para 7b and 7c below) is reached on net present value basis, after which it shall be discontinued. The loan with interest will be repayable in annual installments starting from 31st year of commencement of sale from the plant. The loan availed in the first year will be repaid in the 31st year and the loan availed in the 2nd year will be repaid in the 32nd year and so on. WBIDC will ensure that the loan under this head is paid within 60 days of the close of the previous year (on 31st March) failing which WBIDC will be liable to compensate TML for the financial inconvenience caused @ 1.5 times the bank rate prevailing at the time on the amount due for the period of such delay. TML & GoWB will make best efforts to maximize sale of products from the “Small Car Plant” in the State of West Bengal.
(b) WBIDC will provide 645.67 acres of Land to Tata Motors Ltd on a 90 year lease, on an annual lease rental of Rs. 1 crore per year for first 5 years with an increase @ 25% after every 5 years till 30 years. On expiry of 30 years, the lease rental will be fixed at Rs. 5 crores per year, with an increase @ 30% after every 10 years till the 60th year. On the expiry of 60 years, the lease rental will be fixed at Rs. 20 crores per year, which will remain unchanged till the 90th year. On expiry of 90 years the lease terms will be fixed on mutually agreed terms at that point of time. The benefit on account of land would be calculated as the total land area leased out to TML multiplied by the cost of acquisition calculated in the manner as provided in para 5 less NPV of rent payable during 60 years.
(c) The West Bengal Govt. will provide to TML a loan of Rs. 200 crores bearing @ 1% interest per year repayable in 5 equal annual installments starting from the 21st year from the date of disbursement of loan. This loan will be disbursed within 60 days of signing of this Agreement.
(d) The West Bengal Government will provide Electricity for the project at Rs. 3/- per KWH. In case of more than Rs. 0.25 per KWH increase in tariff in every block of five years, the Government will provide relief through additional compensation to neutralize such additional increase.
8. It is also agreed that the computation of the comparison of benefits in Annexure I and II will be changed if there are any changes in the rates of excise duty and corporate income tax during the next 10 years.
Farewell to the Tatas: Costs and benefits of the Tata-Singur Project, a detailed dissection of the deal
http://sanhati.com/front-page/1001/
By Dipankar Basu, Sanhati.
Summary of findings:
Costs: the total cost of the Tata-Singur project incurred by the exchequer, and hence ultimately the tax payers, will be approximately be Rs. 3000 crores on a net present value basis when we add up the costs pertaining to the land subsidy, the tax holidays, the soft loan, the real estate gift and the subsidized electricity using an interest rate of 11%. This is about 58% of the total realized industrial investment in the state of West Bengal in 2007.
Benefits: Maximum cap of 12,000 direct jobs with 10% unskilled employment, minus employment destruction. The other claim about the Singur project generating prospective investment in the future rests on equally shaky foundations. The question really boils down to whether the Tata plant can attract other major investments and lead to an industrial rejuvenation of Bengal. The example of Jamshedpur in neighbouring Jharkhand should be carefully looked at. Tata’s factories in Jamshedpur did nothing for the overall industrialization of the state of Bihar or now Jharkhand. It remained an enclave of industrial activity, without forging strong forward or backward linkages in neighbouring areas.
Tata’s net worth versus what they demand from tax-payers: If we add up the figures for the Tata Group’s overseas acquisitions, we arrive at a rough figure of $14,062 million, which converts to roughly Rs. 56,248 crore (using an exchange rate of Rs 40/$), and this is not even a complete list of Tata’s recent acquisitions. And, what does all this lead to? It inevitably leads us to the conclusion that a corporation which can invest more than Rs. 56,000 crores for acquisition of strategic foreign corporate assets requires the financial support of India’s impoverished taxpayers, to the tune of Rs. 1140 crores in real terms, to set up a small car manufacturing plant in India!
A discussion of TINA is given.
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Introduction
Singur stands for many, often contradictory, things. It stands for the model of neoliberal industrialization that the Indian state is trying to push down the throats of it’s citizens at the behest of big capital. It stands for the unprincipled and populist politics of dormant right-wing forces. It stands for the abject surrender of an erstwhile communist party to the dictates of capital, the full flowering of a tendency that surfaced in the Indian political firmament circa 1967. But Singur also stands for the struggle of labour against capital, decidedly in confused and masked manners, but a struggle that has the potential to galvanize resistance against neoliberalism. When the Tata Group, forced by the long-standing struggle of the small farmers and landless labourers in Singur, was reported to be planning a move to Pantnagar in Uttarakhand, there were simultaneous reports of a possible Singur waiting for them in Pantnagar. A Singur in Pantnagar! That is the real significance of the struggle of the landless labourers and peasants of Singur.
Right from day one, the West Bengal government and the mainstream media has been building up the case for the manufacturing plant in Singur on the basis of half-truths and untruths. For a long time, the West Bengal government continued denying the fact that it had “acquired” a large tract of the proposed 1000 acres from unwilling farmers by using coercion, strong-arm tactics and certainly without their consent. Towards the later part of 2006, after considerable protests and a public hearing organized by intellectuals and activists, it had to finally accept it’s own earlier statements as false. Now it is known by all and sundry that 411.11 acres of the total 997.1 acres has been acquired without consent of the relevant farmers. For a long time, again, the West Bengal government continued denying the fact that most of the land that was sought to be “acquired” was fertile and multi-cropped agricultural land. It was only when earlier this year the Supreme Court pointed towards a possible violation of the Land Acquisition Act, responding to a petition filed for immediate halt of the Nano car project, that the West Bengal government finally accepted that it had been willfully misleading the public in this regard for so long; the SC had pointed out that acquiring and using fertile, multi-crop agricultural land for industrial purposes goes against even the Land Acquisition Act, which the West Bengal government was, paradoxically, trying to use to “acquire” that land. Now it has been established beyond any shadow of doubt that the land on which the proposed plant is to come up is, in the main, fertile, multi-cropped agricultural land. Another myth that had been in circulation for some time was the following: the land in Singur could not be used for agricultural purposes for most parts of the year because of water logging. This claim has also been contested and shown to be untrue. Now it is accepted by all serious commentators that the land had, before being fenced off by the West Bengal police, been in constant use throughout the year for growing various agricultural crops, and that it provided livelihood for more than 12,000 families. Even though these and other such claims of the West Bengal government and the mainstream media have been refuted point by point, over and over again, with facts and arguments and lot of patience and care, they keep turning up ever and ever again like bad coins. They will, as long as the social forces whose interest they represent continue their efforts to hegemonize society; and we will continue refuting them point by point, with patience and care and logic and facts.
But even when these particular canards are discounted, there seems to be a larger argument for industrialization that Singur purportedly represents. The West Bengal government and large sections of the mainstream media tend to equate Singur with industrialization and portray any and every opposition to Singur as opposition to industrialization. The apparent strength, or shall we say charm, of this argument becomes obvious when we see even an preeminent thinker like Amartya Sen falling for it. But this argument is deeply flawed. Opposition to Singur is not opposition to industrialization, it is opposition to neoliberal capitalist industrialization. Opposition to Singur is opposition to the conflation of industrialization with neoliberalism, a scenario where the State steps up it’s efforts to subsidize capital and shore up it’s profits while capital externalizes it’s costs onto labour and the environment with impunity. It is this model of industrialization that we oppose.
An alternative model of industrialization, as far as we can see, would operate in an exactly opposite fashion. It would tax capital and not subsidize it, prevent capital from externalizing it’s costs onto labour and the environment rather than facilitating it, intervene in decisions related to the choice of technique to be used in production, force private capital to do proper cost-benefit analysis before embarking on a (socially) costly industrial project, intervene through fiscal and monetary policy to maintain overall levels of aggregate demand and try to ensure full employment with living wages for workers. In the alternative vision, the State would use tax revenues to build infrastructure, provide social sector services and closely monitor and improve the well-being of the people. Singur, and the model of industrialization that it stands, takes us in the exact opposite direction; that is why it needs to be opposed. It destroys livelihoods tied to agriculture without creating compensating jobs in industry, it willfully snatches away fertile, multi-crop agricultural land for industrial purposes when so much fallow (and other unused and misused) land is there to be used, it externalizes the costs of production on the most vulnerable sections of the population and the environment, and all this while the State steps in to massively subsidize private capital even further. If, therefore, due to the struggle of the project affected people the Tata’s finally leave West Bengal, it should call for rejoicing not for middle-class chest-beating that is so much on display these days. For it would be one of the important victories in the emerging struggle against neoliberalism in India.
Cost and Benfits
In this article we will try to study details of the costs and benefits of the proposed manufacturing plant in Singur on the basis of information that is available in the public domain. But a caveat is necessary. This is not a full blown cost-benefit analysis because we shall not venture to quantify the indirect benefits of possible net employment generation and the income that might arise from there. At this point, it is not even clear whether there will be positive net employment generation; it is not at all obvious, in other words, that the employment destruction entailed by the project will be exceeded by the employment generated by it. Moreover, a full cost-benefit analysis would require much more information than has presently been made available by the West bengal government; on the basis of the available information, which pertains mostly to the benfits that the West Bengal government plans to make available to the Tata’s, we shall mainly try to approximately quantify the costs to the exchequer, and ultimately to the people of the state.
A careful study of the details relating to the proposed project in Singur, to the extent possible by the publicly available information, is important for two main reasons. First, it is important to do a dispassionate analysis of the costs and benefits of this project; since the West Bengal government has been continually making largely unsubstantiated claims about the putative benefits of this project, it is high time we carefully analyzed the foundations of this claim. Second, this project is very much in line with the current trend of neoliberal capitalist industrialization in India anchored tightly in the visions of the Special Economic Zones (SEZs); hence a study of this project will highlight, and help us evaluate, many of the important characteristics of neoliberal capitalist industrialization that has been envisioned and aggressively pushed by the Indian state since the early 1990s. Parenthetically, one should also note how acceptance of the logic this project signals the gradual dissolving of social democracy in India: from”managing” the conflict between labour and capital, social democrats are increasingly moving towards “managing” labour for capital.
The main document that we will use for the purposes of this study is the text of the recent “agreement” signed between the Government of West Bengal, the West Bengal Industrial Development Corporation (WBIDC) and the Tata Motor Ltd. (TML) pertaining to the proposed manufacturing plant in Singur. By a careful analysis of the information contained in this document, and complementing this with some more information from other sources we will, hopefully, be able to arrive at a true picture of the costs and benefits of this project. But before we get into the nitty-gritty of the agreement, let us remind ourselves about the severe difficulties that we have faced over the past few years in just trying to get hold of the information that is relevant to this project. Recall that the details of the “deal” wasn’t made public initially because the West Bengal government believed it was a “trade secret”. Once this argument was properly trashed, the government shifted gears. During this period, it wasn’t made public despite repeated Right To Information (RTI) applications because, according to the government, the Tatas didn’t want it to be made public! Finally what has been made public, mainly because of pressure from the standing committee on industry of the West Bengal state assembly, are only parts of the “deal”; this all we have for the purposes of study and analysis. The TML filed a case in the Calcutta High Court and got a stay against the rest of it being made public. What is there in the rest of it? We, and the more than 12000 project affected families in Singur, can only guess. The entire episode, to say the least, is patently undemocratic, and makes a mockery of the intent of the recently passed Right to Information Act. One does not, of course, discern even an iota of concern about this important matter displayed by the “peoples’ government” in West Bengal!
The Agreement
The “agreement” between the West Bengal government, WBIDC and TML is a remarkable document by all means. Starting from the premise that the state of West Bengal must match, rupee for rupee, every fiscal and financial incentive offered to TML by other states like Uttarakhand and Himachal Pradesh, it goes on to lay out the details of the same. This, the agreement states, should be read as the state government’s eagerness to “take appropriate steps for rapid industrialization in West Bengal”. This, to the best of our knowledge, is the clearest admission by the West Bengal government and the “communist” party standing behind it of the acceptance of neoliberalism. By accepting that the road to “rapid industrialization” winds it’s way through huge subsidization of private capital in the form of tax breaks and soft loans with the concomitant costs borne by labour and the environment, the West Bengal government has finally announced it’s participation in the Indian State’s neoliberal industrialization program. We will discuss this issue in greater detail below.
The text of the agreement is also remarkable in it’s enormous onesidedness. Every concrete detail in the agreement refers to what the West Bengal government will do for TML; there is no mention of what TML will do in return! It is as if by accepting to invest in the state, TML has bestowed an enormous favour on the people and it’s government. Overwhelmed by this boundless magnanimity of TML, the West Bengal government has decided to offer everything in it’s power to return that favour. The favours offered to TML come in four concrete forms: (a) subsidized land for setting up the manufacturing plant, (b) loans in the form of tax holidays, (c) soft loans to get started, and (d) subsidized electricity. There is no mention of anything that the state can expect in return from TML. Loans do not require collateral, failure to make timely payments do not require penalties, there is no mention of what employment generation TML’s investment will entail, there is no mention, in short, of anything at all that might inconvenience private capital or hold it accountable to the people. Below, we will look at the each of the components of the favours, what we will quite realistically refer to as costs, and also try to take seriously the claims of the government about the purported benefits of the project, but first, let us briefly remind ourselves about the land “acquisition” and it’s proposed use.
Land “Acquisition” and Use
The agreement - scroll down to read the text of the agreement - states that land “of approximately 1000 acres chosen [by TML] in P.S. Singur of District Hoogly” was finalized as the site for the construction of the proposed plant. Subsequently WBIDC “commenced the process of acquisition of this land”, an euphemism for the veritable terror unleashed on the farmers of Singur to give up their fertile, multi-cropped agricultural land for neoliberal industrial “development”. Using the colonial era Land Acquisition Act of 1894, the WBIDC coerced - with the support of the police and cadres of the ruling party, CPI(M) - several hundred families to give up their land, and according to the agreement, it is now “in possession of 997.1 acres of land”.
Out of this forcibly-acquired 997.1 acres of land, 647.5 acres will be leased to TML to set up it’s proposed plant, what the agreement calls the “Automobile Project”; another 290 acres will be leased to “the vendors to this Automobile Project approved by TML”, the vendors being the ancillary and component manufacturing units. An area of 14.33 acres will be given to the West Bengal State Electricity Board (WBSEB) for the construction of a 220/132/33 KV substation to provide and uninterrupted supply of subsidized electric power to the “Automobile Project”; and the remaining “47.11 acres will be used by WBIDC for rehabilitation activities for the needy families amongst the Project affected persons”. Note in passing that only 4.74% of the “acquired” land has been earmarked for purposes of rehabilitation of the project affected persons.
Total Cost of the Project
According to the details available in the agreement, the total cost to the people of West Bengal of the proposed project in Singur, as we have already pointed out, can be broken down into the following four categories: (a) subsidized land for setting up the manufacturing plant, (b) loans in the form of tax holidays, (c) soft loans to get started, and (d) subsidized electricity. Point 7 of the agreement provides details about each of these. Point 7(a) is about the tax holiday; point 7(b) is about the hidden subsidy in land; point 7(c) is about the soft loan, and point 7(d) is about the subsidized electricity. The sum of these “fiscal incentives”, excluding the subsidy in electricity, add up to what the Uttarakhand/Himachal Pradesh governments offered to TML. How do we know this? From point 7(a) of the agreement which states: “This benefit [i.e., the tax holiday] will continue till the balance amount of the Uttarakhand benefit (after deducting the amount as stated in para 7b and 7c below) is reached on net present value basis, after which it shall be discontinued.” In other words, the sum of the benefits offered by the West Bengal government in the form of (a) subsidized land, (b) tax holiday, and (c) soft loan will equal what the Uttarakhand/Himachal Pradesh governments were willing to offer; the subsidized electricity (and other real estate, as we will see below) are bonuses, which make the West Bengal government’s offer exceed the Uttarakhand/Himachal Pradesh. But this also means that we can indirectly arrive at the total cost of the project in Singur if we can somehow figure out the amount of the Uttarakhand/Himachal Pradesh package.
Point (1) of the agreement mentions that the “incentive package in Uttarakhand/Himachal Pradesh consists of:-
(a) 100% exemption from Excise Duty for 10 years.
(b) 100% exemption from Corporate Income Tax for first 5 years and 30% exemption from Corporate Income Tax for next 5 years.”
How much is this package worth? Let us try to think this through. We have collected some information from annual financial reports of TML in Table 1 that will help us get an approximate figure for the Uttarakhand/Himachal Pradesh package using points 1(a) and 1(b).
| Table 1: Financial Position of Tata Motors (Rs. Crores) | ||||||||
| Year | Gross Revenue | Revenue net of excise | Excise | Profit Before Tax | Profit After Tax | Taxes Paid | Excise/Gross Revenue (%) | Tax/Gross Revenue (%) |
| 2005-06 | 27266.41 | 23718.17 | 3548.24 | 2348.98 | 1728.09 | 620.89 | 13.01 | 2.28 |
| 2006-07 | 36987.82 | 32426.41 | 4561.41 | 3088.14 | 2169.99 | 918.15 | 12.33 | 2.48 |
| 2007-08 | 40340.79 | 35651.48 | 4689.31 | 3086.29 | 2167.7 | 918.59 | 11.62 | 2.28 |
Source: http://ir.tatamotors.com/index.php?CardID=4
There are some remarkably stable patterns in the data. TML seems to be paying about 12% of its gross revenue as excise duty and 2.35% of it’s revenue as corporate income tax. If TML were to set up shop in Uttarakhand or Himachal Pradesh, it would be manufacturing about 250,000 small cars per annum. If each car were to sell for Rs. 1 lakh, TML’s gross annual revenue would be approximately Rs. 2500 crores. If the TML would have to pay excise duty, assuming the above ratios, it would pay about 300 crores (12% of Rs. 2500 crores) per annum; if it had to pay corporate income tax, it would have to pay about Rs. 58.75 (3.5% of Rs. 2500 crores) crores per annum. If TML set up shop in Uttarakhand/Himachal Pradesh, according to the agreement, it would not have to pay these taxes as stated in point 1(a) and 1(b).
Summary of the Uttarakhand/Himachal Pradesh package: for the first 5 years, TML gets Rs. 358.75 crores every year (100% excise duty exemption + 100% corporate income tax exemption); and for the next 5 years, it gets Rs. 317.63 crores every year (100% excise duty exemption + 30% corporate income tax exemption). The NPV of this benefit package is Rs. 2062.79 crores (using 11% for calculating NPV).
According to point 7(a) of the agreement, the West Bengal government’s “benefits package” will equal this sum if we compute the benefit coming from subsidized land, soft loans and tax holidays. Let us now look at the different components of the package promised by the West Bengal government.
Hidden Land Subsidy
What are the terms of the rental structure on the land lease agreed upon by WBIDC and TML? Two different set of rules apply, one to the 647.5 acres leased to TML and another to the 290 acres that will be leased to the vendors approved by TML. Both leases, however, will come up for possible renewal 90 years down the line. For the 647.5 acres of land that is leased to TML, the annual rental will be Rs. 1 crore for the first five years, increasing by 25% every five years till 30 years. Thereafter, the annual rental will be fixed at Rs. 5 crore, to be increased by 30% every 10 years till the year 60; the rental from year 61 to 90 will be Rs. 20 crore per year. For th vendors, the rental structure is simpler: for the first 45 years, they will pay an annual rental of Rs. 8000 per acre, and for the next 45 years will pay an annual rental of Rs. 16000 per acre. Since the vendors are leasing 290 acres of land, this means that for the first 45 years, they pay a total of Rs. 0.232 crores per year and Rs. 0.464 crores per year for the rest of the time.
| Table 2: Rental Payment Structure over Time | ||||||||
| Years | Payment per year (Rs. Crore) | Payment for the period (Rs. Crore) | Cumulative Payment starting from Year 1 | Period Payment as % of Total Payment | Cumulative Percentage | NPV of period payment (@ 11%) | Cumulative NPV of Period Payment | Cumulative percentage of NPV |
Tata | ||||||||
| 1-5 | 1.00 | 5.00 | 5.00 | 0.58 | 0.58 | 3.70 | 3.7 | 21.83 |
| 6-10 | 1.25 | 6.25 | 11.25 | 0.73 | 1.31 | 2.74 | 6.44 | 38.02 |
| 11-15 | 1.56 | 7.81 | 19.06 | 0.91 | 2.23 | 2.03 | 8.47 | 50.02 |
| 16-20 | 1.95 | 9.77 | 28.83 | 1.14 | 3.37 | 1.51 | 9.97 | 58.92 |
| 21-25 | 2.44 | 12.21 | 41.04 | 1.43 | 4.80 | 1.12 | 11.09 | 65.52 |
| 26-30 | 3.05 | 15.26 | 56.29 | 1.78 | 6.58 | 0.83 | 11.92 | 70.42 |
| 31-40 | 5.00 | 50.00 | 106.29 | 5.84 | 12.42 | 1.29 | 13.21 | 78.02 |
| 41-50 | 6.50 | 65.00 | 171.29 | 7.60 | 20.02 | 0.59 | 13.8 | 81.5 |
| 51-60 | 8.45 | 84.50 | 255.79 | 9.87 | 29.89 | 0.27 | 14.07 | 83.09 |
| 61-90 | 20.00 | 600.00 | 855.79 | 70.11 | 100.00 | 0.33 | 14.4 | 100.00 |
| Vendors | ||||||||
| 1-45 | 0.23 | 10.44 | 10.44 | 33.33 | 33.33 | 2.09 | 2.09 | 88.94 |
| 46-90 | 0.46 | 20.88 | 31.32 | 66.67 | 100 | 0.04 | 2.13 | 100.00 |
Details of the payment schedule, for both TML and the vendors, is summarized in Table 2. This is similar to, but more detailed than, a table used by Madhukar Shukla for commenting on the Nano project; the main difference is the inclusion of figures on net present values (NPV). What is net present value? It is a conceptual device used to compare sums of money at different points in time, which I explain in greater detail below. Why is NPV relevant here? Because an investment project like the proposed plant in Singur involve costs and benefits flowing in at different points in time. Columns (2) through (6) give the actual payments to be made at various points in time, while the last three columns give the net present value (NPV) of the payments, where NPV has been calculated using an interest rate of 11% per annum (exactly as done by the WBIDC in Annexure II of the agreement). Note in passing that the Annexure where all the computations relating to the project has supposedly bee done has not been made available to the public; all we know is that the NPV calculations used an interest rate of 11%.
To arrive at figures about the costs of “acquiring” the land and the revenue earned from leasing it to TML (and the vendors), we need to remind ourselves that the WBIDC spent anything between Rs. 150 crore and Rs. 200 crore to “acquire” the land from the unwilling farmers. How much will WBIDC get for letting TML use that piece of land? Columns (4) shows that the TML will pay a total amount of Rs. 855.79 crores over 90 years as rental fees for using the land. So the cost incurred by the WBIDC is Rs. 150-200 crore, while revenues will be 855.79 crore. Does this mean that the WBIDC made a good bargain with the TML on behalf of the people of the state? Does it men that the WBIDC is actually making a “profit” in leasing out the land to TML? Let us think about this a little more.
A rupee today is not equivalent to a rupee next year. Why? One can put the rupee that one has today in the bank and earn an interest income at the going interest rate to augment the original sum. If the current interest rate is 11%, then one would have Rs. 1.11 at the end of the year if the rupee were to be invested in an interest-bearing asset today. Put another way, Rs. 1.11 at the beginning of next year is equivalent to Rs. 1 today (at the beginning of this year). Let us go further, and suppose that we let our rupee lie in the bank for two years. How much do we have at the beginning of the third year? Rs. 1.21 (because at the beginning of the second year one has Rs 1.11, and then one earns 11% on that amount to arrive at Rs. 1.21 at the beginning of the third year). Inverting things, we see that Rs. 1.21 two years hence is equivalent to Rs 1 today when the market interest rate is 11%. This logic can be extended to any number of years and is the basis of computing net present values (NPVs). In the jargon of economics, if the market interest rate is 11%, Rs. 1.1 one year hence has a NPV of Rs. 1; and Rs. 1.21 two years hence has a NPV of Rs. 1. Thus, NPV is a device to make sums of money at different points in time comparable to each other. What does this mean for us?
It means that we cannot just add up all the rental payments that TML is supposed to make over the next 90 years (which is Rs. 855.79 crores) and compare it to the cost incurred by the WBIDC to “acquire” the land today (which is Rs. 150-200 crores). To make the stream of rental payments of the TML (over the next 90 years) comparable to the cost of “acquisition” today, we need to calculate the NPV of the rental payment stream. That is precisely what we have done in column (7) in Table 2. Column (8) gives the sum of the NPVs of the rental payments. On the basis of this calculation we arrive at a very striking fact at the end of column (8). The NPV of the rental payments that the TML will make over the next 90 years is Rs. 14.4 crores! The NPV of the rental payments that the vendors will make is Rs. 2.13 crores.
Summary: while the cost to the WBIDC for “acquiring” the land was anything between Rs. 150 crores to Rs. 200 crores, the NPV of the revenue from rental income that will accrue to the WBIDC is Rs. 16.53 crores, sagging the WBIDC with a loss of anything between Rs. 130 crores to Rs. 180 crores! Which is just another way of saying that taxpayers are subsidizing a big corporate entity like the TML to the tune of Rs. 150 crore just in terms of the land that the WBIDC “acquired” for it.
Cost of Circumventing the Law
A moment’s reflection on the time structure of rental payments for TML brings another characteristic of the transaction to the fore. The time structure of payments has been arranged in such a way that the bulk of the rental payments come in later years. From column (6) in Table 2 we see that the TML makes only 5% of it’s total payments in the first 25 years of the lease; in the first 50 years, it pays only 20 percent of it’s total payment commitments. The Comptroller and Auditor General of India (CAG) had pointed out in March 2008 that, according to Government of India laws, long-term leases of 99 years required that the lessee pay 95% of the market value of the land as a one-time premium at the beginning of the lease and pay annual rent at the rate of 0.3% of the market value of the land. The same report went on to note that the agreement between the TML and the WBIDC should have entailed an immediate payment of Rs. 91.88 crore and subsequent annual rents of Rs. 29 lakhs for the next 90 years. As opposed to this, the TML, according to the agreement, would pay nothing upfront and would only pay Rs.1 crore at the end of the first year!
Of course it would have been illegal if the lease was for 99 years. Hence, it seems, the WBIDC cleverly decreased the span of the lease by 9 years to circumvent the letter of the law. In spirit, though, this still amounts to a violation of the law. Why? Because the law states that for long-term leases the majority of the payments should be paid upfront by the lessee; and the WBIDC agreement with TML shows an exactly opposite time structure of payments, with most of the payments pushed off far into the future. Thus, even though in letter the agreement clears legal hurdles, it is obvious that it fails miserably in terms of the idea behind the law. No wonder the CAG faulted the WBIDC on several counts regarding it’s agreement with the TML. But let us pause for a moment and think why the CAG (or the laws) wanted the bulk of the payment upfront.
There are two basic reasons why the law might want to ensure bulk of the payments for a long-term lease upfront. One, large upfront payments for long-term leases increases the NPV of the rental payment stream. Since these long-term leases generally require the government to hand over public land for private use, it makes sense to structure rental payments in such a way that the government exchequer gets a good value in return; that is why a large upfront payment is usually written into lease contracts for long-term leases. The second reason for having a large upfront payment relates to considerations of risk. When a stream of payments has relatively large amounts pushed far away in the future, the NPV of that stream of payments is more liable to change when market interest rates change.
Let us take an example to understand both these points. Suppose, for simplicity, we want to compare two payment streams, A and B. A has Rs. 1 lakh today and Rs 9 lakhs in 10 years; B has Rs 9 lakhs today and Rs .1 lakh in 10 years; note that both entail a total payment of Rs. 10 lakhs over a period of 10 years and are similar in this respect. But they also are very dissimilar. To understand why suppose that the market interest is 10% at the moment. NPV of A is Rs. 4.47 lakhs, while the NPV of B is Rs. 9.39 lakhs. Thus, the NPV of B is much higher than that of B, which clarifies the first point. Now suppose that the market interest rate increase to 15%; this will obviously diminish the NPV of both A and B. But which will fall more? A’s NPV falls by about 39% while B’s NPV falls by only 1.5%! Thus, the risk of loss of revenue that comes from a payment stream (payment of rent for instance) is higher when most of the payments come in during relatively later periods. It is probably because of these two sound economic reasons, among others, that the CAG urged the West Bengal government to reconsider it’s lease agreement with the TML. By structuring the rental payments such that most of it come in during later years, the West Bengal government is not only losing revenue but is also bearing a higher risk of loss of even that minimal revenue.
So, how much is the WBIDC losing in real terms by using the rental payment structure that is summarized in Table 2 instead of the one recommended by the CAG? If TML were to pay Rs. 91.88 crores upfront and then subsequently pay a rental of Rs. 29 lakhs per annum for the next 90 years (as suggested by the CAG ), the NPV of this payment scheme would be Rs. 94.52 crores (using an interest rate of 11% per annum for calculating the NPV). The NPV of the currently agreed upon rental payment scheme (as per the agreement) is Rs. 16.53 crores (sum of entries in column (7) of table 2). Hence, the WBIDC is losing Rs. 77.99 crores due to the chosen rental payment structure.
Summary: the total financial loss to the WBIDC due to the agreed upon rental payment structure, as opposed the one suggested by the CAG, is Rs. 77.99 crores; the WBIDC, in addition, has to bear extra risk arising from possible fluctuations in the market interest rate.
Soft Loans and Tax Holidays
Point 7(c) of the agreement provides information about the soft loan: “The West Bengal Govt. will provide TML a loan of 200 crores @ 1% interest per year repayable in 5 equal annual installments starting from the 21st year from the date of the disbursement of the loan”. This loan, moreover, “will be disbursed within 60 days of this agreement”. Point 7(a) of the agreement refers to the loans that the WBIDC will give to the TML in the form of tax holidays. The tax holiday will continue, as we have already noted, till the sum of the land subsidy, tax holiday and the soft loan equals the Uttarakhand/Himachal Pradesh package.
So, what is the total loss to the exchequer due to the tax holidays and soft loans. There are two ways to arrive at approximate value of this loss. First, if we knew the exact amounts of the loans (in the form of tax holidays) and the exact repayment shedule and interest rates, we could calculate the net present value of the loss. But unfortunately, we do not have enough data in this regard, and so we will adopt an indirect method to arrive at the notional cost of the tax holiday and the soft loans. This second, indirect method, begins by recalling that, according to point 7(a) of the agreement, the total benefits from the land subsidy, taxt holidays and soft loans offered by the West Bengal government will equal the benefits that was offered by the Uttarakhand/Himachal Pradesh govenrment. We have seen above that the total value of the Uttarakhand/Himachal Pradesh package was approximately Rs. 2063 crores on a net present value basis. We have also seen that the cost to the exchequer of the subsidized land was about Rs. 228 crores (Rs. 150 crores for direct subsidy and Rs. 78 crores lost due to the time structure of the rental payment scheme). Thus, the total cost of the tax holiday and the soft loans will be Rs. 1835 crores (which is Rs. 2063 crores less Rs. 228 crores) on a net present value basis. Note that this is a notional cost.
The last part of 7(a) seems even better. It says: “WBIDC will ensure that the loan under this head is paid within 60 days of the close of the previous year (on 31st March) failing which WBIDC will be liable to compensate TML for the financial inconvenience caused @ 1.5 times the bank rate prevailing at the time on the amount due for the period of such delay”. What does this mean? It means that if the WBIDC is not able to make the loan to TML within 60 days of the close of the financial year, it will penalize itself by compensating TML at 1.5 times the prevailing bank rate. So, if the prevailing bank rate is 10%, which is close to what is the case right now, the WBIDC will penalize itself for any delay on it’s part by paying back the TML for the “financial inconvenience” at 15%.
Summary: the cost of the soft loans and tax holidays to the TML by the West Bengal government will be about Rs. 1835 crores on a net present value basis.
More Gifts from Santa: Real Estate and Subsidized Electricity
Industrial development requires infrastructural support from the government, as we all know. And so the West Bengal government displayed it’s commitment to “rapid industrialization” by offering a “virtual gift of 650 acres of prime land to Tata Housing Development Company (THDC) in Rajarhat New Town and in the adjoining Bhangar Rajarhat Area Development Authority for building an IT and residential township along with WBIDC as a partner”. What better way to provide “infrastructural assistance” for the industrialization effort that to hand over prime land for real estate speculation! Some reports suggest that this “gift” to TML will cost the exchequer about Rs. 160 crores.
The West Bengal government has also promised to supply electricity at Rs 3 per kilo watt hour (kwh), which is around half the price charged to high-tension industrial consumers in the West Bengal at the moment. It has also promised to absorb any increases in electricity costs to the TML in Singur. Point 7(d) of the agreement states: “In case of more than Rs. 0.25 per KWH increase in tariff in every block of five years, the Government will provide relief through additional compensation to neutralize such additional increase”. This will mean, at the least, shelling out Rs. 70 crores annually for subsidizing the electricity requirements of the whole project at Singur. The NPV of this subsidy for the 90 year period of the lease would be Rs. 706 crores.
Summary: the cost to the exchequer of the real estate gift and subsidized electricity will be about Rs. 865 crores.
Adding up the Costs
Let us now take a moment to put all this together. The subsidy that TML gets, according to the terms of the agreement, on the land in Singur is anywhere between Rs. 100 and Rs. 150 crore; the subsidy due to the rental payment structure is Rs. 78 crores; the implicit subsidy due to the tax holiday and the soft loan would be about Rs. 1835 crores; the real estate “gift”, also known in WBIDC terminology as “infrastructural assistance”, is worth Rs. 160 crores; and the subsidized electricity will cost another Rs. 706 crores. So, the Tata conglomerate, one of the largest corporate entities in the country, is awarded a “gift” of about Rs. 2928 crore by a “communist” government so that it can be induced to set up a car manufacturing plant in the state and lead it on to the path of neoliberal industrial development. To put this figure in perspective, let us refer to the 2008-09 budget speech of the Finance Minster of West Bengal. Pointing to the emergence of what he called the “industrial potential” of the state, he offered some concrete figures to bolster his argument. In 2005, the annual realized (industrial) investment in West Bengal was Rs. 2515.58 crores, which then jumped up to Rs. 5072.26 crores within the next two years. Thus, a sum close to 58 percent of the total realized industrial investment in the state in 2007 would be the cost borne by the people of the state if the Tata-Singur project too off.
Summary: the total cost of the Tata-Singur project incurred by the exchequer, and hence ultimately the tax payers, will be approximately be Rs. 3000 crores on a net present value basis when we add up the costs pertaining to the land subsidy, the tax holidays, the soft loan, the real estate gift and the subsidized electricity using an interest rate of 11%. This is about 58% of the total realized industrial investment in the state of West Bengal in 2007.
What are the Benefits?
What are the purported benefits of the Tata-Singur project? The West Bengal government has advanced two claims regarding the benefits: employment generation and improvement in the investment climate of the state. These two claims about possible employment generation and future investments need to be looked at closely, because the rationale offered by the West Bengal government for giving the stupendous bonanza to the Tatas rests precisely on these. Both these claims are dubious. Regarding the claims about employment generation, there have been figures ranging from a high of 12000 (2000 in the Nano plant proper, 10000 in ancillary and complementary units) to a low of 750 (some recent local newspapers have put the figure at 650). The upshot of all this is that there is no certainty about the employment generated. However, if we look at a recent BBC report on this matter it becomes clear that 62% of the projected employment in the automotive sector is going to be skilled labour, 28% is going to be management jobs, leaving only 10% jobs for unskilled labour. Now, the displaced population in Singur, if at all they get absorbed in the mother plant or in the ancillary units, would typically be offered employment as unskilled labour. So, the prospect of much employment being generated, especially for the people in Singur, is dim. Moreover, all these calculations ignore the employment destruction that the project will inevitably entail. If we were to properly take both possible employment generation and possible emplyment destruction into account, we could arrive at a figure for the net emplyment generated by the project. At the moment, it is not even clear that the net employment figure will be positive.
The other claim about the Singur project generating prospective investment in the future rests on equally shaky foundations. The question really boils down to whether the Tata plant can attract other major investments and lead to an industrial rejuvenation of Bengal. The example of Jamshedpur in neighbouring Jharkhand should be carefully looked at. Tata’s factories in Jamshedpur did nothing for the overall industrialization of the state of Bihar or now Jharkhand. It remained an enclave of industrial activity, without forging strong forward or backward linkages in neighbouring areas. The other issue to think about, in the context of the claim about TML drawing future investments, is whether other industrialists coming to invest in Bengal would also demand similar bonanzas from the government. Will the government refuse them the goodies that they have offered TML and let them turn away or will it repeat the Tata-like agreements and put further burdens on the exchequer. Either option does not seem to be beneficial from the perspective of the working people of the state.
Summary: while the costs of the proposed Singur-Tata project is obvious, tangible, immediate and large, the benefits seem to be uncertain, residing far away in the future and their magnitudes small.
Oh! So Poor Tata
A few months back, the finance minister of West Bengal presented a budget with a Rs. 2 crore deficit; a net subsidy of about Rs. 3000 crores would certainly be extremely costly for the people of the state; after all it is about 1500 times the budget deficit in fiscal year 2008-09. Given that a small, poor, fund-starved state like West Bengal is making such great efforts to subsidize the Tata’s, it must mean that they (the Tata’s) are in a dire financial situation. But is that true? If we merely cast a glance at the recent international buying spree that the Tata’s have been engaged in, we might be able to understand how far from the truth would be any assertion that the Tata’s require financial assistance from a poor state like West Bengal to start an industrial project.
The Tata Group of Companies, let us remind ourselves, is one of the largest business conglomerates in India with about 100 large companies in it’s fold. With the might of the Indian State firmly behind it, monopoly capital in India has started a move to aggressively acquire foreign assets, what it calls strategic corporate assets. In the last few years, the Tata Group has been leading this acquisition spree on behalf of Indian big capital, making forays not only in Asia and Africa but also in the heartland of world capitalism: USA and Europe. Let us briefly take a look at the record of the Tata Group with regard to foreign acquisitions.
In January 2007, the Tata Group pulled off India’s biggest ever takeover of a foreign company to buy Anglo-Dutch steel-maker Corus for $12 billion; this acquisition made the combined entity (Tata-Corus) the world’s fifth largest producer of steel. In March 2004, the Tata Group acquired South Korea’s Daewoo Commercial Vehicle Company for $102 million; this was followed by the acquisition of a 21 percent stake in Spanish bus maker Hispano Carrocera for $18 million with an option to pick up the remaining stake at a later date. Around the same time, Tata Technologies, another company in the Tata fold, which provides automotive engineering and design services, bought Britain’s Incat International for $53 million.
Tata Consultancy Services, which was earlier a division of Tata Sons and a rising star in the Tata Group, has been among the most aggressive shoppers for foreign companies. It has acquired six companies in the past few, with the net value of the deals close to $100 million; these include FNS of Australia, which was acquired for $26 million and Chile’s outsourcing major Comicrom, which was bought for $23 million. When the Tat Group acquired the former state-run, international telecom carrier, VSNL, a few years ago, it was on it’s way to becoming a major telecom player in the global markets. To enhance it’s position, it acquired undersea cable company Tyco of the US for $130 million, Internet service provider Dishnet’s India division for $64.28 million and international telecom service provider Teleglobe of the US for $239 million.
Following its acquisition of Hindustan Lever Chemicals, Tata Chemicals was on the lookout for a steady supply of phosphoric acid for its newly acquired plant at Haldia, West Bengal. Accordingly, it took over two overseas companies for a total value of $215 million: Indo Maroc Phosphore of Morocco in March 2005 and Brunner Mond Group of Britain in December 2007. Morocco, by the way, produces over 50 percent of the world’s rock phosphate.
In 2000, Tata Tea bought British giant Tetley for a $407 million, and started looking for similar deals to strengthen it’s global position in the tea and related drinks business. This search led to acquisition of 33 percent stake in the South African company Joekels Tea Packers for an undisclosed amount and 30 percent stake in the US-based favoured water manufacturer Glaceau for $677 million, the acquisition of the US-based Good Earth Corp for $32 million and acquisition of the Czech Republic’s firm Jemca for an unknown amount.
India Hotels, the hotel branch of the Tata Group, acquired several hotels abroad for $121 million in the past few years. It is reported to have set aside $100 million for future acquisitions in Europe, the Middle East, Asia and the US. In December 2006, it had acquired W, a hotel at the Woolloomooloo Bay in Sydney; it was followed by the taking over of the management of The Pierre, a luxurious landmark hotel on New York’s Fifth Avenue. India Hotels, which runs the Taj Group of hotels, has 39 hotels in India and 18 worldwide. A recent acquisition of India Hotels was Campton Place Hotel in San Francisco.
If we add up the figures for the Tata Group’s overseas acquisitions, we arrive at a rough figure of $14,062 million, which converts to roughly Rs. 56,248 crore (using an exchange rate of Rs 40/$), and this is not even a complete list of Tata’s recent acquisitions. And, what does all this lead to? It inevitably leads us to the conclusion that a corporation which can invest more than Rs. 56,000 crores for acquisition of strategic foreign corporate assets requires the financial support of India’s impoverished taxpayers, to the tune of Rs. 1140 crores in real terms, to set up a small car manufacturing plant in India! That, in a nutshell, is what we would like to call neoliberal industrialization, pushing which down our throats has become the almost single-minded purpose of the West Bengal Government and the “communist party” that is at it’s helm of affairs.
TINA Logic
But even after all these facts and figures and arguments have been read, understood and absorbed, sympathizers of the West Bengal government will no doubt come up with a supposedly unbeatable argument: TINA. There is no alternative. This argument points to the magnanimous offers made by other states in India to attract private capital, and then goes on to plead the inability of the West Bengal government to follow any route other than to offer even more largesse. Recall that the text of the agreement starts precisely with this argument. It builds up it’s case for the huge hidden subsidies that is offered to TML, and which we have seen in great detail above and which add up to about Rs. 3000 crores on a net present value basis, by emphasizing the incentive package that the States of Uttarakhand and Himachal Pradesh has offered to the Tatas. That is why the West Bengal government must offer more than the value of the offers by the other states if it is to attract private capital, like the TML, to industrialize the state. Since, other states are offering huge tax breaks and soft loans, West Bengal must also do so, the argument goes. West Bengal cannot fight this trend, caught as it is in the competitive struggle between the states of India.
One must begin by acknowledging that there is some truth to this assertion. It is true, in other words, that in the neoliberal set-up private capital has managed to generate competition between political entities, both within nations and between nations, to ensure higher profits on it’s investments. But acknowledging this fact, the fact of the existence of this strong pressure for competition among states, does not mean accepting it as inevitable; it does not mean accepting the logic, championed by the proponents of neoliberalism, that there can be no alternative to the present framework. If the fight against neoliberalism has to be taken forward then this logic must be fought. One cannot succumb to this logic in practice and claim to be fighting against neoliberalism.
And to fight this logic, one must understand what it implies. The competition that capital manages to enforce on political entities (for instance states in India or countries in the global context), one must understand, is akin to a “race to the bottom”. As soon as one state lowers taxes, reduces social sector spending, loosens labour laws, cracks down on political dissent in order to make the atmosphere “conducive” for investments, another tries to outdo the first by reducing taxes even further, reducing social sector spendings even further, making labour even more “flexible” in order to “attract capital”. And thus, as the logic of this competition unfolds in all dimensions, people of all the states taken together lose. Lower tax revenues means lower resources for the State to invest in educations, health, nutrition, poverty alleviation; it means increased misery for the common people, with sub-optimal infrastructure and public amenities. And who benefits from this fierce competition? Capital. Thus accepting this as the only way to industrialize is to accept this “race to the bottom”, with all it’s deleterious consequences for the population, as the West Bengal government seems to have done.
So what can be done? One has to act on several fronts at the same time. First, it is undeniable that fighting the neoliberal logic will require concerted political action at the Central level to thwart moves to implement central-level neoliberal policies; the largest “communist” party standing behind the West Bengal government must shed it’s fears of radical mass political activism and launch, with other like minded political forces, a nationwide offensive against neoliberalism, instead of using all it’s energies in parliamentary antics. It will also mean not succumbing to the pressures of capital at the state level as the West Bengal government has pathetically done. If private capital wants to move out of the state because taxes are high and social sector spendings are growing and the labour laws are favourable for the workers, and the health and educational status of the people are improving, then so be it. The state need not hanker after such capital for, at the end of the day, massively state-subsidized investments of such capital is not beneficial for the people.
Second, one must understand that, if attracting capital is all one wants to achieve, capital can also be attracted in a very different fashion, by reversing the harmful, negative competition between states and instead initiating a “race to the top” to replace the “race to the bottom”. For it is a fact, recently noted by several observers of the Indian economy, that India is very rapidly moving into a regime marked by serious shortages of skilled labour. A state which wants to attract private capital can, therefore, invest massively in building up the education and health system for the workers; a healthy and skilled labour force can be a stronger incentive for capital to set up shop in a state than huge tax holidays. In fact, instead of giving tax breaks to capital, the state will need to tax them aggressively and use the tax revenue to further improve the conditions of the working people. Equally true is the abysmal conditions of physical infrastructure - transportation, housing, power, etc. - in most of the states of India. A state can, therefore, start investing in building up basic infrastructure for the people by taxing capital and citizens in the high-income brackets; solid infrastructure can be as strong an incentive for private capital as soft loans and hidden subsidies. The point of these interventions would be, in the medium and long urn, to initiate reversal of the “race to the bottom” that every state seems to be in the grip of. Unfortunately, the West Bengal government seems hell bent on going the opposite way.
Third, complementing these interventions have to be efforts to revitalize mass political activism at the grassroots level. Imagine, for a moment, a strong, countrywide mass movement against neoliberalism. If Singur in re-enacted in Uttarakhand and Himachal Pradesh and Karnataka, then where will the TML go? Wherever it sets up shop, it will have to do so without the luxury of externalizing the costs onto the working people and the environment. Simple economic logic suggests that forcing capital to internalize it’s costs by an active mass political movement would in fact ensure that the decisions taken by capital will be closer to what could be considered socially optimal. Mass participation in planning and implementation would, further, increase much-needed accountability of both the state and capital. Unfortunately again, the West Bengal government wants to go the other way.
Conclusion
This brief analysis of the details of the proposed Tata-Singur project in West Bengal offers us an unique opportunity to think about the industrialization strategy of the Indian state today. One of the major thrusts of this strategy is to build up so-called Special Economic Zones (SEZs) all over the country. As of August 11, 2008 there were 250 notified SEZs across the country. Since each of these SEZs more or less replicate the policy regime applicable to the proposed Tata-Singur project - with magnanimous tax holidays and soft loans and subsidized power and “flexible” labour laws and absence of all environmental regulations - it would probably not be far from the truth to suggest that each of these SEZs would entail at least the amount of loss that we have calculated above for the Tata-Singur project. This suggests that the total cost to the people of this country of the current neoliberal policy regime would be about Rs. 750,000 crores. How large is this figure? For comparison, consider the fact that the total expenditure of the Indian government was slated to be Rs. 750, 884 crores in budget 2008-09; thus, an amount which is roughly equal to the total expenditure of the Indian government in 2008-09 would be the loss to the nation for embracing neoliberalism. Isn’t it high time we sharpened our struggle against neoliberalism in earnest?
(Comments from Debarshi, Kuver and Partho have substantially improved the argument of this article).
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Agreement between Tata Motors Ltd., Government of West Bengal and WBIDC
1. Tata Motors Ltd. (TML) was intending to set up a manufacturing Plant for Automobile Products including “Tata Small Car” to manufacture 250,000 cars per annum on 2 shift basis which could be expanded to 350,000 on 3 shift basis. In addition, it would have several Vendors and act as a mother plant for many aggregates to tune of 500,000 cars. In this connection, TML was considering locating the plant in the States of Uttarakhand/ Himachal Pradesh in view of the fiscal incentive package for the rapid industrialization being made available by the Govt. of India to new Industries in these States which has been attracting a large number of industries to these States. The incentive package in Uttarakhand/Himachal Pradesh consists of:-
(a) 100% exemption from Excise Duty for 10 years.
(b) 100% exemption from Corporate Income Tax for first 5 years and 30% exemption from Corporate Income Tax for next 5 years.
2. The Government of West Bengal (GoWB) is keen to take appropriate steps for rapid industrialization in West Bengal and in this connection wanted to attract some major Automobile Projects to the State. The Government of West Bengal approached TML to persuade them to locate an Automobile Project including the project to manufacture “Tata Small Car” in West Bengal. TML showed interest in locating the plant in West Bengal, provided the State gave Fiscal incentive equivalent to the value of total incentives it would have received by locating the plant in Uttarakhand / Himachal Pradesh. GoWB offered to match the financial incentives in equivalent terms and invited TML to set up the Small Car plant in West Bengal entailing investment of over Rs. 1500 crores by TML. In addition, Vendors supporting the project are likely to make further investment of over Rs. 500 crores.
3. Since then numerous discussions have been held and based on this understanding, GoWB proceeded with identification of various lands for this mega project. Land of approximately 1000 acres chosen in P. S. Singur of District Hooghly was finalized with TML. West Bengal Industrial Development Corporation Ltd. (WBIDC) commenced the process of acquisition of this land. The process was completed with the Declaration of Award under Section 11 of the Land Acquisition Act, and thereafter WBIDC has obtained mutation of ownership in its name in the Record-of-Rights, and conversion of usage of the land from agriculture to factory.
4. WBIDC is in possession of 997.11 acres of land, which has been acquired under the Land Acquisition Act. Out of this, an area admeasuring 645.67 acres will be leased to TML for setting up the Automobile Project including the small car plant, while an area admeasuring 290 acres will be leased to the vendors to this Automobile Project approved by TML (ancillary and component manufacturing units), 14.33 acres will be handed over by WBIDC to WBSEB only for construction of 220/132/33 KV substation and the balance admeasuring 47.11 acres will be used by WBIDC for rehabilitation activities for the needy families amongst the Project affected persons.
5. The terms of lease to TML for the 645.67 acres of land for the mother plant are described below. In addition, WBIDC will provide on lease 290 acres of land to the Vendors selected and approved by TML 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 expended by WBIDC or any of its subsidiaries (duly certified by its auditor) averaged over the total land acquired. The lease rental payable per year per acre by the vendors will be Rs. 8000/- per acre for the first 45 (forty five) years and Rs. 16000/- per acre for the next 45 (forty five) years. The initial lease tenure will be 90 years. On expiry of 90 years, the lease terms will be fixed on mutually agreed terms at that point of time.
6. The parties also discussed mutually to finalise the package of incentives required in order to enable GoWB to fulfill its commitment to match in equivalent financial terms the fiscal incentive foregone by TML in Uttarakhand. The Net Present Value (NPV) computation of benefits that the project would have received in Uttarakhand is attached in Annexure I which is agreed to by all the parties. Sample computation of benefits in West Bengal with stated assumptions is given in Annexure II which is accepted by all parties as agreed basis of computation. The NPV is calculated @ 11%.
7. Accordingly, it is finally agreed, in supersession of all previous decisions and agreements in this regard, that for this mega project, the fiscal incentives under Industrial Promotion Assistance in terms of the West Bengal Incentive Scheme (WBIS 2004), assistance towards land cost and interest subsidy in the form of a loan against a quantum of the term loan to be taken by TML for this project will be offered by GoWB as follows:-
(a) WBIDC will provide Industrial Promotion Assistance in the form of a Loan to TML at 0.1% interest per annum for amounts equal to gross VAT and CST received by GoWB in each of the previous years ended 31st March on sale of “Tata Small Car” from the date of commencement of sales of the small car. This benefit will continue till the balance amount of the Uttarakhand benefit (after deducting the amount as stated in para 7b and 7c below) is reached on net present value basis, after which it shall be discontinued. The loan with interest will be repayable in annual installments starting from 31st year of commencement of sale from the plant. The loan availed in the first year will be repaid in the 31st year and the loan availed in the 2nd year will be repaid in the 32nd year and so on. WBIDC will ensure that the loan under this head is paid within 60 days of the close of the previous year (on 31st March) failing which WBIDC will be liable to compensate TML for the financial inconvenience caused @ 1.5 times the bank rate prevailing at the time on the amount due for the period of such delay. TML & GoWB will make best efforts to maximize sale of products from the “Small Car Plant” in the State of West Bengal.
(b) WBIDC will provide 645.67 acres of Land to Tata Motors Ltd on a 90 year lease, on an annual lease rental of Rs. 1 crore per year for first 5 years with an increase @ 25% after every 5 years till 30 years. On expiry of 30 years, the lease rental will be fixed at Rs. 5 crores per year, with an increase @ 30% after every 10 years till the 60th year. On the expiry of 60 years, the lease rental will be fixed at Rs. 20 crores per year, which will remain unchanged till the 90th year. On expiry of 90 years the lease terms will be fixed on mutually agreed terms at that point of time. The benefit on account of land would be calculated as the total land area leased out to TML multiplied by the cost of acquisition calculated in the manner as provided in para 5 less NPV of rent payable during 60 years.
(c) The West Bengal Govt. will provide to TML a loan of Rs. 200 crores bearing @ 1% interest per year repayable in 5 equal annual installments starting from the 21st year from the date of disbursement of loan. This loan will be disbursed within 60 days of signing of this Agreement.
(d) The West Bengal Government will provide Electricity for the project at Rs. 3/- per KWH. In case of more than Rs. 0.25 per KWH increase in tariff in every block of five years, the Government will provide relief through additional compensation to neutralize such additional increase.
8. It is also agreed that the computation of the comparison of benefits in Annexure I and II will be changed if there are any changes in the rates of excise duty and corporate income tax during the next 10 years.
