Friday, October 10, 2008

Nano – Who Is Funding the Car?

I always believe in the fact that there is always something more than what meets your eye. And this has been proved right for me on every occasion.

Take case of Nano – the cheapest car from India’s Tata group. Tatas promise to deliver the car at INR 100,000 (i.e. little more than $ 2000). Mind well – this is a promise, so the car will carry the INR 1 lac tag notwithstanding any external factor.

nano

Initially Nano was to be produced in the eastern Indian state of West Bengal which is ruled by communist party for decades. Surprisingly, the opposition to the Nano project came from not the communists but their opposition – Trinmool Congress leader Mamata Banerjee. She agitated so strongly against take-over of land by Tatas that Tatas had to pull put from the current location – some 50 km away from Kolkata.

The utility of Nano is beyond doubt. A 1 lac car puts mobility within reach for thousands of small-town Indians thereby giving a strong impetus to economy. Forceful agitation by Mamata Banerjee (her supporters sealed the Nano plant area, making normal production impossible) created a roadblock for Nano which by now has become a point of pride for Indians. This act generated widespread anger against the tactics of Mamata and her actions were said to be politically inspired. Incidentally, Tats had to pull out from W. Bengal and they have now opted for Gujarat for setting up the Nano plant. Read these media reports here, here, and here.

Though I am fully for the Nano and believe that political sabotage of any project is worse rather than good, I always felt that there must something more than what meets the eye. For example, no media report was talking @ Tats’s deal with W. Bengal government. No facts were being presented anywhere.

Today, I came across what I was searching for many days – some facts from other side of fence. I am not drawing any conclusions here; I just want to point out some facts presented in an article. Here is an excerpt (read original article here) -

                The cash starved WB government has given a Rs.200 crore loan to Tata Motors at – yes – at 1% interest. The first installment will be repaid in the 21st year of the project. Does a group that paid Rs 35,000 crore or so to acquire the British steel company Corus need a Rs.200 crore loan at 1% interest? Forget that. By the time the first installment is due, Tata Motors would have earned close to Rs.2,000 crore in interest income by investing that money in a fixed deposit.
               Tata Motors will pay a lease of Rs.1 crore per year on 647 odd acres of land for the first 30 years of the 90 year old lease. That is less than Rs.1,300 per acre in commercial land, less than 50 kilometers from Kolkata. Even poor middle class souls like you and me pay a lease of Rs.1,80,000 per year for a 1,000 square feet house far from the heart of the city.
               The Nano project will get power at Rs.3 per KwH; the current rate in Bengal is Rs.4.15. If rates go up by more than 25 paise per Kwh in five years, the government will refund Tata Motors. You and me are already paying close to Rs.6 per unit for electricity. For every Nano sold in Bengal, the state will de facto refund the VAT and sales tax collected on each sale of Nano.

If these facts are to be taken as an indicator to the kind of deals state governments are entering into, then it is the state’s taxpayer who is going to bear the burden of car’s cost-price difference.

A 1 lac car, then really is not so attractive an idea that it is without such facts.

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