The officials indicated that they would like to set up a base for manufacture of 60,000 cars in the first year and then ramp it up to 1,00,000 during the second year.

Our Bureau

Hyderabad, Oct. 14

THE visiting team from Volkswagen AG, the German automotive major, has tied up loose ends for the detailed project report (DPR) for its India car plant. It plans to submit the report to the company board later this month.

A team from the State Government will be invited for further negotiations to the company's German headquarters once the DPR is finalised.

While expressing its intent to locate an Rs 8,000-crore manufacturing plant in India, the company team, however, indicated that providing a facility in a special economic zone, deferring central sales tax for 10 years and removing Central excise would make the project financially viable.

The team comprising the company head of finance, Mr Patrick Mayer, their legal head, Mr Alfred Strohlein, and Mr Peter Walters and Mr Webers, held detailed parleys and left without interacting with the media.

However, during the discussions all the open-ended points have been tied up, according to Government sources.

The Government negotiations were headed by the State Principal Secretary for Industries, Ms Lakshmi Parthasarathy.

The officials indicated that they would like to set up a base for manufacture of 60,000 cars in the first year and then ramp it up to 1,00,000 during the second year. It aims to bring in a small car that suits the Indian market that would be priced in the Rs 3-4 lakh range, it is learnt.

Given the financial pressures the company was facing in its China plant, unless these incentives were given the project viability would be stretched, they maintained. Therefore, they wanted a 16 per cent Central excise waiver. The State said this was beyond their purview.

From the State's side, they assured that the company would be provided 350 acres of developed land, and extend eight years of sales tax deferment, power at Rs 1 per unit and water at Rs 10 per kilolitre.

While indicating that they would prefer to locate their centre near the auto ancillary base, the company favoured an alternative site or wanted the Vizag site to be made a special economic zone. The Government side said that since the car would also be sold in India, SEZ is not possible and cited Ford and Hyundai plants based near Chennai.

Given the inherent advantage of Chennai as automotive hub, and the current thinking of the German carmaker, will Volkswagen drive to Chennai to locate their plant? This is something which comes up to one's mind, courtesy the cluster theory. It may be recalled that yet another German major BMW recently agreed to locate a plant near Chennai.

(This article was published in the Business Line print edition dated October 15, 2005)
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