Tatas Dream Car Plant Location

Question 1
Tatas initially considered three options, Dharwad in Karnataka, Uttarakhand and Singur in West Bengal.
In terms of most of the location factors, all three options were equally good. However, what mattered
most for Tatas were the terms offered by the respective state governments for setting up the plant in their
states. In addition to the geographic advantage Karnataka offered water and poer sops.Uttaranchal offered
many other benefits. Initially, Tatas had almost chosen Uttaranchal as the location of the plant.
However, West Bengal government pushed hard and tried to convince Tatas to bring the plant to Singur. It
offered many sops including cheap land, cheap loans and many other benefits. Tatas insisted that the
value of the benefit package offered by West Bengal government must be larger than that offered by
Uttaranchal. After much negotiations, Tatas signed an agreement with west Bengal Industrial
Development corporation. The benefits

offered were much higher that the package offered by

Uttaranchal.
The incentive package in Uttarakhand consisted of:
a) 100% exemption from Excise Duty for 10 years.
b) 100% exemption from Corporate Income Tax for first 5 years and 30% exemption from
Corporate Income Tax for next 5 years
West Bengal Government provided a bigger incentive package.
a) Land: Tatas were given 645.67acres of land on very low rates, with 290 acres more for its
vendors. It was acquired from the farmers by the government and was handed over to Tatas.
The government provided 645.67 acres of Land to Tata Motors Ltd on a 90 year lease, on an
annual lease rental of Rs. 1 crore per year for first 5 years with an increase @ 25% after every 5
years till 30 years. On expiry of 30 years, the lease rental were to be fixed at Rs. 5 crores per year,
with an increase @ 30% after every 10 years till the 60th year. On the expiry of 60 years, the
lease rental were to be fixed at Rs. 20 crores per year, which were to remain unchanged till the
b)

90th year.
Government will provide Industrial Promotion Assistance in the form of a Loan to TML at 0.1%
interest per annum for amounts equal to gross VAT and CST received by government in each of

the previous years ended 31st March on sale of Nano. The loan was repayable only after 30 years.
However, it provided a penalty on the government if it failed to provide funds.
c) The West Bengal Govt. will provide to TML a loan of Rs. 200 crores bearing @ 1% interest per
year repayable in 5 equal annual installments starting from the 21st year from the date of
disbursement of loan. This loan will be disbursed within 60 days of signing of this Agreement.
d) Electricity for the project at Rs. 3/- per KWH. In case of more than Rs. 0.25 per KWH increase in
tariff in every block of five years, the Government will provide relief through additional
compensation.
e) The benefits are to be recalculated if there are any changes in the rates of excise duty and
corporate income tax during the next 10 years.
This package was very heavy and Tatas decided to relocate their plant to Singur. There were several
others factors supporting Tatas decision. Singur, being only 50 Km from the educational hub of Kolkata,
would be the ideal location for the education of the children of the employees. Moreover, Singur would be
a first step for Tatas to gain foothold of the largely untapped industrial potential of West Bengal which
was not realized till date. These long term factors contributed to Tatas decision to come to Singur.

Question 2
When the Nano project was first visualized, Pune and Jamshedpur might have surfaced as natural
candidates. But Tatas did not consider them as serious contenders.
a) Tatas already have multiple facilities in these cities. But the new project was a huge one,
requiring a large amount of contiguous land, which would not have been possible either in Pune
or Jamshedpur.
b) The other Tata facilities would not be able to provide support to the Nano project by supplying
parts because the Nano would not have conventional parts. The Nano had a specialized engine
and other accessories designed with the specific goal of minimizing cost. The production
processes would have to be optimized. The production processes at the existing facilities of Pune
and Jamshedpur are not designed for the Nano.
c) Unlike West Bengal, Uttaranchal and Karnakata, the governments of Maharashtra and Jharkhand
did not offer generous largesse.
d) There were environment concerns about the ability of the heavily industrialized cities to
accommodate a new project of such a scale.
e) The Nano had a specialized market segment. It caters to the need of the lower middle class Indian
who craved for a car, but was unable to afford it. Pune and Jamshedpur did not offer a strategic
location for such a customer base, whereas Singur was the ideal candidate.

Question 3
Tatas have always chosen strategic locations for the plants which includes land and construction cost,
mode of transportation for shipping heavy manufactured product and receiving bulk shipments of raw
material. Additionally, utilities, labor availability and market proximity are also on the top agenda before
deciding the location of the plant.
The situations of Lucknow and Singur are totally different. The first one is pure economic decision and
second is forced decision due to socio-political scenario developed in the WB state.
The Lucknow plant is situated at a major road rail junction. During the starting of plant UP government
also relaxed tax regulation and provided various economic incentives for the industry to start in that area.
However, later the government was unable to fulfill its commitments as stated in the Industrial Investment
Promotion Policy. Then it became increasingly difficult for Tata Motors to compete in the market without
any incentives. Since such economic incentives in the form of the excise duty exemption was provided
by Uttarakhand government, Tatas planned to shift its production facility to Pantnagar.

In recent times establishment of any large manufacturing industry is facing resistance and Tata is not any
exception to this. The acquisition of land either for public or for private sector is a zone of conflict. There
are many examples where land acquisition is marred with controversy such as Dedicated freight corridor,
Kudankulam nuclear power plant ,Vedanta and Noida housing society.

The increasing incidences of contentious situations in the establishment of an industry is due to many
demographic, political and socio-economic reasons.
1. Demographic cause - Population density has increased tremendously which is putting extreme
pressure on scarce land recourse.
2. Political cause The labour unions have become very strong and possess lot of power today,
hence their demands cannot be overlooked by the plant owner anymore. The interest of many
political parties also impact the business climate. In the case of Singur and Lucknow, hidden
political motives were the main reason of controversies.

3. Economic cause Many governments try to attract the industry in their respective state by
providing various subsidies. In the above two cases Tata shifted to a different state because other
state government facilitated the relocation of industry and provided many incentives to the plant.
4. Social cause Due to better coverage of media and presence of many NGO in rural areas the
grievances of people are being ventilated. Villagers are more aware of their right and government
has also provided many laws such as labor law, land rehabilitation act etc so that concern of poor
people could be addressed properly.
So it will be premature to comment that Tata chose wrong location for their plants. Rather it is better
to state that current political and economic environment is very fragile. Hence company should be
ready to face any unforeseen situations in todays environment.

Question 4
The opposition is against the governments move of allocating the land to Tata. They put the allegation
that the land allocated is out of proportion and is given at throw-away price. The industry does not fulfill
any public purpose and government has acquired the land through a process which is not transparent.
These parties have mobilized the people and over-exaggerated the negatives of the plant.
This time the best strategy is to increase the awareness among the masses about the long term benefit of
the plant. Tata should search for those young and vibrant youth of the Singur village who are interested in
the establishment of the project. These youth should be sent to other factory of Tata such as Jamshedpur
for training. After seeing the change brought by Tata plant in other area they will probably stop the
agitation.
Such villagers will be future asset for the company as they will spread the benefit of the plant through
word of mouth. This will help in formation of a social capital base of the company in the area. Local
villagers will believe on the opportunity situation presented by their own people. Such move will be a
clear win for Tata as these people will work as skilled labor as well as an agent of change in the locality.
This may lead to transformation of the attitude of villagers towards Tata plant.
Tata need to clarify to the opposition that they are anticipating higher demand for affordable cars in years
to come. Hence they are acquiring more land to address the situation of capacity cushion, which may be
required if the demand will increase in future. The strategic objective is to produce the car at very low

price so the vendors must be located nearby to cut the transportation cost. Such a move will give many
opportunities

to

MSMEs.

It

will

also

generate

large

potential

for

employment

and

entrepreneurial activity.
Considering the population growth the land will come under pressure after some time, especially as the
area already has fragmented holdings. In addition to this the cycle time for income from agriculture is
almost yearly whereas the Industry would remunerate the workers monthly. In that scenario industries
would guarantee perpetual employment. Hence the establishment of industry will be the potential growth
engine for the area and it will certainly benefit the local people in long run.
Additionally, Tata is planning to assist local people in terms of skill development, training, providing job
opportunity and other social infrastructure such as school and hospital. These should be documented in
legal contract so that local people as well as opposition can really have faith on the commitment made by
Tata. Such move will increase the confidence of people in Tata and will cooperate in development of the
region. Such long term planning and holistic thinking will certainly help in resolving the current situation
amicably.