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How Tata got Singur cheap

india Updated: Sep 11, 2008 01:03 IST

Hindustan Times
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Caught in a political storm one and a half years after it was signed, the agreement between Tata Motors Limited (TML) and the Bengal government was influenced by a state located a thousand miles away from Kolkata.

So desperate was the Buddhadeb government to make West Bengal the base for Nano that it offered greater fiscal incentives to match Uttarakhand’s two big perks — “100 per cent exemption from excise duty for 10 years and cent per cent exemption from corporate income tax for the first five years. It threw in another 30 per cent exemption for the next five years.

For a long time, the Tatas and the government refused to reveal the agreement citing confidentiality. On Monday night, details of the deal Mamata Banerjee has been so keenly seeking were quietly put up on the West Bengal Industrial Development Corporation website.

Today, even as West Bengal tries to tackle Mamata’s anti-acquisition movement, the Tatas are reportedly planning to roll out the first Nano from their Pantnagar plant in Uttarakhand.

It may surprise many in the corporate world but Uttarakhand’s name was mentioned several times in the agreement to establish that Bengal was actually offering more incentives.

“TML showed interest in locating the plant in West Bengal, provided the state gave fiscal incentive equivalent to incentives it would have got by locating the plant in Uttarakhand/Himachal Pradesh. The Government of West Bengal 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 crore by TML. In addition, vendors supporting the project are likely to make a further investment of over Rs 500 crores”, the document says.

The government also offered to “fulfil its commitment to match in equivalent financial terms the fiscal incentive forgone by TML in Uttarakhand”.

Even though Bengal perennially suffers from power crisis the government agreed to provide electricity for the project at Rs 3 per KWH. In case of more than 25 paisa per KWH increase in tariff, in every block of five years, the government agreed to provide relief through additional compensation to neutralise the additional cost.

To ensure that the Tatas could reap maximum benefit out of the this scheme it was also specifically mentioned that TML and the state government would “make best efforts to maximize sale of products from the small car plant in the state of West Bengal”.

The government also agreed to provide 645.67 acres to TML on a 90-year lease on an annual rent of Rs 1 crore for the first five years and with an increase at the rate of 25 per cent every five years till 30 years. After 30 years, the rent will be fixed at Rs 5 crore a year with an increase at the rate of 30 per cent after every 10 years till the 60th year. After that the rent will be Rs 20 crore a year.

A loan of Rs 200 crore was also offered to TML bearing an interest rate of one per cent and repayable in five annual installments from the 21st year. This was, however, dropped from the agreement earlier this year when the Centre reduced tax on small cars (with engine capacity of 600 cc or less) in the Budget.