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Nano will cost Bengal hundreds of crores a year

Pradeep Gooptu | October 01, 2008 02:06 IST

Sources in the West Bengal government's finance department said the state had made budgetary provisions that would run into several hundred crores every year for 20 to 30 years to attract Tata Motors' [Get Quote] Nano project to Singur.
 
This payout was to begin from the scheduled start of the production in 2008. The project is now facing problems owing to protests by land-losers unwilling to compensation from the government.
 
Responding to questions raised on the basis of the contract signed between the state government, Tata Motors and West Bengal Industrial Development Corporation (WBIDC), the source said the state would also match any additional benefits accruing to factories in hill states like Uttarakhand, were these states to receive any further incentive packages in the future.
 
At the end of 2006, the state government had disbursed the first part of its support to Tata Motors in the form of a soft loan of Rs 200 crore at an interest of 1 per cent per year repayable in five equal annual instalments from the 21st year from disbursement of the loan, entailing a lock-up of the capital and loss of interest income on the amount for the entire tenure.
 
At a simple rate of 12 per cent a year, the interest subsidy would cost the state about Rs 25 crore a year.
 
The state had committed to extend a loan of around Rs 400 crore a year at 0.1 per cent interest, payable monthly, for 30 years, as a matching amount for the value added tax (VAT) received by the state at the rate of 12 per cent on every car sold.
 
The 12 per cent VAT on the Rs 1 lakh base model would go up if more of the upper-end versions of Nano were sold, so the amount of the loan to be extended to TML could surge.
 
The state would also extend a loan to match the central sales tax collected on the vehicle, payable on each car sold outside the state, or aggregates of such cars sent to other factories, and this commitment was expected to cost the state at least Rs 50 crore a year, given the installed capacity of the Singur plant to make 350,000 cars and generate components and aggregates for up to 500,000 cars.
 
The state government had also promised Tata Motors subsidised power at the rate of Rs 3 per kilo watt hour (kwh), or at around half the price of power charged to high-tension industrial consumers in the state at present, in perpetuity.
 
This in turn would mean extending support to the tune of up to Rs 70 crore a year for the 997-acre factory zone comprising the mother plant, the ancillary and component facilities and all related infrastructure under the current power tariff structure.
 
Incidentally, land for the factory had also been provided at a subsidised rate with 645 acres being provided to Tata Motors at Rs 1 crore a year against market rate of Rs 19.3 crore a year in that area, and with 290 acres being provided for the vendor and related facilities units at Rs 23 lakh a year against a market rate of Rs 8.7 crore a year. This excluded the cost of acquisition of the land pegged at around Rs 120 crore.


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