Skipping Vat may cost Tamil Nadu firms dearly

Chennai | Updated: Jul 4 2005, 05:30am hrs
That one step by the Tamil Nadu governmentto skip implementing the Value Added Tax (Vat)may cost its industry crores of rupees every year. And if this is not rectified, firms in the state may have no option but to look for alternate sites. This is the impression one gets from the response of a cross section of industrialists and associations about cost of doing business in Tamil Nadu.

The state has a sound industrial base and its manufacturing sector is upbeat about capacity expansion. It continues to attract substantial fresh investments and is considered a hot destination by both foreign and domestic players. However, the state governments decision to not implement Vat will have an adverse impact. Since it is a manufacturing hub for a number of products, for firms based in Tamil Nadu, the cost of doing business outside the state may rise. This will affect our competitiveness in the long run, says a leading industrialist who does not want to be quoted.

A senior official from Sundram Fasteners Ltd agrees the cost of business in Tamil Nadu might increase because of the lack of introduction of Vat. The state has not introduced Vat, because of which we may not be as competitive as other states. However, we do not see any problem with the governance. Of course there are delays in getting sanctions, but we are willing to accept delays. As for infrastructure, Tamil Nadu has one of the best infrastructure base in the country, says he.

Vinay Piparsania, vice-president, Ford India, says Tamil Nadus greatest advantage is its accessibility to ports. This becomes a very important criteria when an automobile company deals with both imports and exports. One more advantage for an automobile company in Tamil Nadu is the presence of automobile ancillary units and suppliers. This is very important for just in time manufacturers like Ford. It is beneficial to have auto component suppliers based in and around the manufacturing facility. The state also has abundant quality human resources with 200 technical institutes churning out thousands of graduates every year.

In terms of infrastructure, the state is very advanced. Power is not an issue here. This helps us in improving efficiency and reducing costs since we do not have to invest in generators, he adds.

However, he says that the only problem we see is that of logistics. The market for cars is bigger in north and western India. Transporting cars from here to these markets increases the logistics cost. However, with improvement in road network, the logistics cost has reduced to an extent. We are also very happy with the states governance. Ford has an MoU with the state government and the government has been very supportive. We have had a very positive experience with the government, he feels.