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N. Ramakrishnan

Chennai , Dec. 8

ONE of the factors that weighed in Tamil Nadu's favour when BMW was exploring locations to set up a plant to assemble its premium sedans in the country was the speed at which the official machinery acted. A point that Mr Klaus Berning, Vice-President - Sales (Asia, Pacific, Africa, East Europe), BMW group, mentioned after the company signed an agreement with the Tamil Nadu Government on Thursday.It was close to four-and-a-half months from the time BMW started looking at possible locations that it was able to sign the agreement with the State Government. And, whenever the German car manufacturer had doubts on the availability of some incentives, the officials clarified them as quickly as possible, all the while assuring the company that the Government would always remain investor-friendly.

"We had the best feeling here in Tamil Nadu... If in future we have expansion plans, that we have the same speed. Because it is all about speed today and we felt this was present here," said Mr Berning referring to the response from the Government.

BMW has selected a 20-acre site in Mahindra World, a private special economic zone at Maraimalai Nagar, along the National Highway - 45. The State Government's initiative ensured that the company got the land at an attractive price - about Rs 13 lakh an acre, which was the price about six months ago, against the price of about Rs 30 lakh an acre now.

That the company chose a site in an SEZ gives it all the benefits available to investors in a special economic zone. At the same time, it can sell in the domestic tariff area, of course with the Centre needing to clarify some issues on that.

While State governments decided to do away with Sales Tax-based financial incentives a few years ago, most of them came up with industrial policies that enabled them to continue to provide financial incentives, with some modifications. The Sales Tax waiver or deferral that was available earlier to investors gave way to a structured financial package, as specified in Tamil Nadu's industrial policy, depending upon the investment commitment.

BMW, according to sources, has agreed to invest up to $40 million (about Rs 180 crore) in five years, against an initial investment of Rs 110 crore. This made it eligible to get a structured financial package, according to reliable sources.

Under the package, the company will have to pay sales tax to the Government - this would go to the Commercial Taxes Department - but would get this money back as a "soft loan" with interest as low as 0.1 per cent, from the Industries Department. Under this package, the company will be eligible for the soft loan for 10 years, which can be extended to 18 years provided the company ramps up its operations substantially.

The State Government has also assured BMW that it will have good quality, uninterrupted power - the company will be provided two feeder lines, one from Mahindra World's connection and another from the electricity board's grid.

Assembling completely knocked down kits brings down the duty rate to 15 per cent compared to an import duty of 60 per cent if the vehicle were to be imported as a completely built unit and sold here. This itself would reduce the price of a BMW car substantially.

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