Business Today

Tata's options

Where Tata’s small car project is headed is still unclear, but what looks certain is that it won’t start rolling out until 2009.

Kushan Mitra | Print Edition: October 19, 2008

On the morning of January 10, 2008, the day of the launch of the Tata Nano, Ratan Tata reportedly told a group of senior editors over breakfast that some people considered him “mad” to have based the Nano plant in West Bengal. He must now believe that he was overcome by a momentary lapse of reason when he decided that the Nano should be made in Singur, West Bengal. But was Tata “mad” to move to Bengal in the first place? Some vendors, including some of those who moved with him, thought so initially, but “we bought into the Nano project and while Bengal was a strange choice of location, Ratan Tata believed he could make it work, and we believed the company,” says a large vendor who still believes that the Singur project can be salvaged. A scheduled meeting between Tata and West Bengal Chief Minister Buddhadeb Bhattacharjee, which was supposed to have taken place on September 28, was postponed and at the time this magazine went to press, no news had emerged from either side.

Unfinished business: The Nano plant in Singur
Therefore, is the talk of Nano project moving out of West Bengal a game of political brinkmanship? Clearly, Mamata Banerjee’s ambition in life is to move into Kolkata’s Writers’ Building, the seat of the West Bengal government. But some in her party realise that her primordial argument towards land could boomerang in Banerjee’s mainly urban vote-bank and, worse still, alienate her from industry. But these voices are few and far between, and by sticking to her guns, Banerjee, according to many in Kolkata, might have dealt a death blow to the state’s ambitions of re-industrialisation.

So, is industry in West Bengal now doomed? Again, the answer is unclear. Some big-ticket projects such as the Rs 35,000-crore JSW steel plant at Salboni have been moving along steadily. But the failure of the Nano project coupled with softening realty market and agitating farmers might force real estate major DLF to back out of a Rs 33,000-crore township project at Dankuni, a few kilometres down the road from Singur. Last minute intervention by the Chief Minister prevented German supermarket chain Metro from shuttering their cash-and-carry format store in Kolkata much to the angst of the Left Front’s Forward Bloc. IT majors Infosys Technologies and Wipro have taken divergent views—Infosys has stated that it will “relook” its investments in Bengal but Wipro has decided to carry on with its plans in the state. Yet, the pull-out of a small Rs 1,500-crore project might have the biggest impact on the state.

Getting the Nano on the road!
A few weeks ago, Tata Motors Managing Director Ravi Kant said that there was no ‘Plan-B’ for the Singur project, but now if the Nano project has to meet its October-December deadline, the first cars will have to roll out from any of the other existing Tata Motors factories.

Most likely location
Pantnagar, Uttarakhand

Alternative location
Pune, Maharashtra

Long-shot locations
Jamshedpur, Jharkhand or Lucknow, UP
But this will not be a long-term plan; to meet the projected demand for the Nano, a new factory will need to be built. Several states have bent over backwards to offer the Tatas the required 1,000 acres for the plant. Kant has been doing the rounds of state capitals.

Top contenders
Dharwad, Karnataka

WHY? Tata Motors is already building a factory for heavy construction vehicles here, setting up another factory beside the existing facility will make economic sense.

Pantnagar, Uttarakhand

WHY? Tata Motors already produces the highly successful Ace mini commercial vehicle here and some vendors have already set up plants in the area.

Mundra, Gujarat

WHY? This will be beside Tata power’s 4,000 MW Ultra-Mega Power Project and will also give the Nano easy access to port facilities and connectivity.

Other contenders
Rajasthan – Bhiwadi| Andhra Pradesh – Naidupet, Kakinada| Maharashtra – Amravati, Nagpur|Orissa – Cuttack|Madhya Pradesh - Gwalior

But will the Tata’s move out, as many suspect it would? A Tata Motors spokesperson offered a terse, “No comment”. However, some vendors claim that they have been instructed to wait and watch. Still, other vendors and some Tata Motors officials indicate that the first few Nanos may not roll out of the Singur plant at all and may have to be assembled at Tata’s mini-truck plant at Pantnagar in Uttarakhand. But the same sources also point out that this cannot be a long-term solution in case the Tatas do eventually pack up from Singur.

So, where will the Nano be built? As Ravi Kant, Managing Director, Tata Motors, explained once, one of the biggest reasons why the Tatas chose Singur was its proximity to major road and rail connections. The front-runners in the race for the new plant are Mundra in Gujarat, Pantnagar in Uttarakhand and Dharwad in Karnataka, and the respective state governments—all ironically ruled by the Bharatiya Janata Party—are giving the Tatas major concessions as well. In addition, the Tatas invariably already have interests very close to the proposed sites, even though none of them offers the connectivity of Singur. Yet, the governments and the local population in all these locations are believed to be more supportive of the project than a clutch of farmers in Singur, and, crucially, the Opposition in all these states is the Congress, which is not likely to vociferously oppose industrialisation.

But what does all this mean for the launch of the Nano? The car will definitely not roll out in October and even the “third quarter” internal deadline set by Tata Motors (which would have seen the first car roll out by December) may not be met. It is unlikely that the Nano will meet the ignominious fate of the Tata Magna, Tata Motors planned luxury car, but if you wanted to buy one, you might have to wait till 2009.

But will the price that consumers will have to pay for the Nano change drastically? Tata Motors has filed a suit in the Calcutta Hight Court to prevent details of the deal that the West Bengal Industrial Development Corporation offered them from being made public. According to some, the deal offers an effective subsidy of Rs 25,000-30,000 per car. Will other states be able to match these promises? Again, that is also highly likely, but even though Ratan Tata said on January 10, “A promise is a promise,” when he unveiled the car and announced the price of Rs 1 lakh plus transportation, the delays might escalate the price of the project for both Tata Motors and its vendors. And, thus the Nano, where even a slight escalation can have a dramatic impact in percentage terms may not be able to profitably meet its price target, which was already on thin ice when it came to profit margins.

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