The Hindu Business Line : More cos relocating plants from abroad

THE economics of relocating plants and entire assembly lines — lock, stock and barrel — from overseas and reassembling it back home seems to be gaining favour with Indian manufacturers.

A host of companies across the manufacturing spectrum, including Essar Power, ACC, and Jindal Steel in the infrastructure sector, Bharat Forge and the Anand Group in the auto sector, Arvind Mills in the textile sector and Tecumseh in the durables sector have bought over-used, full-fledged working-condition plants in foreign countries, to be subsequently dismantled, shipped and reassembled in India.

For instance, Essar Power is in the process of dismantling and relocating a 1,200-MW power plant from Scotland to Vadinar in Gujarat at a cost of about Rs 2,700 crore. ACC's Delhi-based subsidiary, Everest Industries Ltd, is also midway through the relocation of a `compressed board' plant from Denmark to Nashik (Maharashtra) at a cost of Rs 30 crore, while denim major Arvind Mills is shifting its manufacturing plant from its Mauritius unit to India, at an estimated cost of Rs 12 crore.

Auto component firms including Bharat Forge and the Anand Group are also learnt to have relocated entire assembly lines from the US and Europe to India and are scouting for more opportunities for buying cheap plants abroad. Auto industry sources said that Hi-Tech Gears has also shifted an entire assembly line to India from its US partner Getrag Gears. Omax Autos too has shifted an assembly line to its Gurgaon facility from a US based OEM partner.

According to an executive with one of the companies involved in the exercise, opting for relocating an entire plant from some of the western countries, instead of setting up greenfield facilities here, makes economic sense. "Many of the plants operating in the US and West European countries require to be discarded due to a variety of reasons, including technological obsolescence. Many of these plants can, however, compete well in terms efficiency of operations when compared to existing facilities in India, in addition to coming at a throwaway price."

The import of second hand plants has received a further boost with the `Foreign Trade Policy 2004-09' allowing imports of second-hand capital goods without age restriction. In order to encourage relocation of plants from other countries to India, it has also reduced the minimum depreciated value for plant and machinery from Rs 50 crore to Rs 25 crore.

"With the liberalised norms, we foresee more such relocations happening in the future. In fact, most of these machines are available at only about 20 per cent of the current cost," said Mr A.K. Taneja, Vice-President, Automotive Component Manufacturers Association (ACMA) and President, Shriram Pistons and Rings Ltd.

He added that a number of automotive companies including his own are now looking to buy machinery or entire lines. "Incidentally, due to the restrictions on import earlier, much of this machinery has found its way to China," he said. "Just because a plant is 10 or 15 years old it does not mean it is obsolete, it can work just as well if it is continuously modernised," an analyst tracking the developments said.

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