Tata Motors move to Uttarakhand is bad news for UP MSMEs

Written by Deepa Jainani | Lucknow | Updated: Oct 31 2013, 14:13pm hrs
Tata MotorsAs many as 55 MSMEs provide parts to Tata Motors' Lucknow plant.
Uttar Pradesh's indecisiveness on its promise to provide incentives to firms that have made investments of more than Rs 100 crore in the state is going to cost it dear.

As many as 55 MSMEs that provide parts to Tata Motors' Lucknow plant will have to close down because of the company's decision to shift some of its production to its Pantnagar plant in Uttarakhand, lured by the hill state's excise duty exemptions.

MSME vendors have approached BS Gangwar, UP's minister in-charge of MSME, urging him to get the promised incentives released and help safeguard the interests of a large number of MSMEs.

Speaking to FE, an MSME vendor said that pure economics is the only reason behind this decision of Tata Motors. "Had the UP government honoured its commitment as stated in the Industrial Investment Promotion Policy announced by the Mulayam Singh Yadav government in 2006, the company would not have thought of shifting its production to Pantnagar. It has become increasingly difficult for Tata Motors to compete in the market without the incentives that were promised to it and in order to remain competitive, it wants to avail of the excise duty exemption that Uttarakhand government is providing," he said, adding that more than Tata Motors, this decision will hit ancilliary units hard as they stand to lose around R400 crore and render around 2,000 people jobless.

"It would also incur the state exchequer a loss of R500 crore as revenue, apart from denting the image of the state government," said another vendor.

The 2006 policy promised benefits to as many as 12 firms that had applied at that time.

These include Tata Motors, Gallant Ispat, Sukhbir Agro, Vacmet Packaging, Bindal Agro, KR Pulp, Vam Organys, Grashim Ind, Bajaj Equitex, Rimjhim Ispat and Laksmi Cotsyn.

Of all these firms, Tata Motors plant in Lucknow was the biggest and had invested R550 crore in its expansion.

However, after the Mulayam Singh government was voted out, the Mayawati government cancelled the policy as it saw it as a veritable scam as the subsidies were overlapping and the sales tax clause seemed to have overreaching repercussions."

However, after the Samajwadi Party came back to power in 2012, the industry was pinning all hopes that it will revive the scheme.

But almost 18 months after it took over, precious little has been done.

Sources in the government said the decision to withdraw the Mayawati government's cancellation may prove to be a costly affair for the state, as the subsidy bill would swell to R7,000-odd crore. And if the subsidy is extended to the expansion of the units, as is indicated in the policy, the subsidy bill could well go up to R15,000 crore. It will be a Pandoras box for the present government, which has its own agenda of doling out unemployment allowance and laptops, said an officer requesting anonymity.

For the companies that had invested on account of the promise, it is a bitter pill to swallow.

By withdrawing these facilities and refusing to pay the dues, the state government is going back on its word. We challenged that notification in the Allahabad high court, said an industrialist.

On being contacted, an official of Tata Motors confirmed the development and said that the company is in the process of expanding and would create one extra assembly line in Pantnagar.

"Because of recession, we have decided to share the volumes between Pantnagar and Lucknow units, hence there will be less production here. This is a temporary arrangement and so long as recession is there, this problem will stay. This does not, in any way, suggest that we are shifting to Uttarakhand completely. It simply means that we expanding our operations there and taking part of our production there," he clarified.