This could give the Tatas an opportunity to review the price of the car and even consider taking Maruti head on in the price war. However, there has been no confirmation from the company if it is planning such a move, given that the price announcements made last week seem competitive enough.

In Mumbai, the ex-showroom prices (inclusive of sales tax but not registration and insurance) are Rs 2.63 lakh for the standard petrol, Rs 2.90 lakh for the standard diesel, Rs 3.01 lakh for the semi-luxury diesel and Rs 4 lakh for the luxury diesel version. In the opinion of analysts, it is too early at this stage to predict what a price cut of the Indica would result in.

The Tatas will not have to pay the 10 per cent sales tax and estimates indicate that this could boost Indica sales by 15 per cent in Mumbai and 19 per cent in Delhi. The sales will go up to to 60 per centwithin the state while it will increase by 30 per cent outside Maharashtra.

These incentives by the state will now be given to mega projects (new or expansion) with an investment of Rs 1,500 crore in Pune Metropolitan Region and Rs 2,000 crore in Mumbai Metropolitan region.

State government sources told The Financial Express that the Swadeshi motto was diligently followed by the ruling Shiv Sena-BJP as a gesture to the Tatas in ensuring a level playing field. The alliance has praised the group's efforts to present a totally Indian car that can hold its own vis-a-vis global rivals in the fast changing auto market.

The final decision on sales tax sops will be taken at a meeting of the cabinet sub-committee headed by chief minister Manohar Joshi on January 11. The government sees that though initially it will have to loose a revenue of about Rs 205 crore, there will be hike in revenue due to increased sale of car in that period.

It may be recalled that the state finance and planning departments hadopposed such an incentive to the Tatas as the project was situated in a region which does not come under the Package Scheme of Incentives 1993.

The state finance department had stated that granting incentives in non- backward areas was totally against the concept of backward area development through incentives. "Pune is a developed area with one of the best infrastructure facilities in the country- both hard and soft infrastructure."

The department has argued that the Indica project was not a case of green field investment which needed to be wooed. The project has already been under implementation. The Tatas have so far made an investment of Rs 1,400 crore to produce 1.5 lakh cars per annum, while it will invest Rs 200 crore by March 1999 and Rs 100 crore by September this year.

The department said that incentives were not a critical input for attracting investments. Economic implications for the state if an auto project was set up in another state were really no negative. "Since Maharashtra, being alarge market for autos will get substantial tax revenue of at least Rs 400 crore over a period of 7 years as vehicles were covered under entry tax."

The state planning department stated that if mega project incentives were extended to A category (MMR and PMR), it would defeat the objective of the Package Scheme of Incentives, 1993.

INSIGHT
Attempt at salvaging status

The two-year sales tax exemption forwaded to Telco for the Indica should help boost revenue accruals. With the 10 per cent sales tax levy out of the way, Telco would be in a position to further reduce prices of the Indica. The price cut, however, would be dependent on whether Telco passes on the entire benefit to the customer. This would also help reduce the differential between the Maruti 800 and Indica base model.

On the flip side, the exemption almost appears to be a fire-fighting exercise by the Maharashtra government to repair the damage done to its most friendly investment state status. This is in the backdrop ofthe recent Crisil downgrade and the World Bank refusal for infrastructure loans.