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VAT refund prompts automakers to make fresh investments in Maharashtra
August, 29th 2014

The timing of the announcement is intriguing. With Assembly elections barely a couple of months away, the Maharashtra Government has announced investments of ?11,500 crore from four automakers.

Tata Motors, Mahindra & Mahindra and Volkswagen will expand their plants in the Chakan area near Pune, while Bajaj Auto will spend ?2,000 crore at its Aurangabad facility, home to its RE60 quadricycle, scheduled to roll out in October.

The companies agreed to invest in the State after a dispute over the refund of value-added (VAT) tax was resolved.

VAT dispute
Prior to this, refunds were made good to companies for vehicle sales made across the country so long as they invested ?500 crore in their facilities (in Maharashtra). In 2012, the Government changed this ruling only to include vehicles sold in the State and this did not go down well automakers.

Two of them — Volkswagen and Bajaj Auto — had hinted that they would explore other locations, especially neighbouring Gujarat, which was then on an overdrive with mega investments from Peugeot Citroen, Maruti Suzuki and Ford. M&M, likewise, maintained that it would seek greater clarity on the issue if it had to continue investing in Maharashtra.

On Thursday, the State Government announced that VAT would now be made good in full, though the minimum investment criterion is now three-fold higher at ?1,500 crore.

From the Automakers’ point of view (and, in particular, the Indian companies), all is well that ends well, especially when they have been long-term residents of Maharashtra.

It would not have been worth their while to start all over again in new States, where they would have had to set up an ancillary supplier base from the scratch and hire fresh recruits.

As far as Maharashtra is concerned, these investments pretty much confirm a continuity pattern among existing automakers. The only new name that is still to set up shop is China’s Foton, which has indicated its intention to produce commercial vehicles at Chakan. There has not been much news on that front.

Along with Tamil Nadu (which is right on top) and Haryana, Maharashtra remains a favourable destination point for automakers with Gujarat now keen to establish a place for itself in the India map.

However, will this be enough to assure the ruling Congress-NCP alliance a triumph in the Assembly elections?

All indications point towards a BJP-Shiv Sena victory, thanks to, what experts aver, the Modi wave which is still going strong.

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