2012 Western India Special: At a crossroads

India’s western India automotive cluster is home to the biggest and venerable names in the sector, Tata Motors and Bajaj Auto, to mention a few. Over the years, they have been joined by several big global names that have made this region a powerhouse in its own right even though it may be argued that some key global companies have moved to the South in the Chennai-Oragadam area, wooed aggressively by the state government that rolled out a red carpet. One of the biggest players here is the Volkswagen Group, which has plants in Aurangabad, set up a decade ago when Skoda entered India, and at Chakan which actually rolled out the Skoda Fabia as its first product.

On the sidelines of SIAM's annual convention in Delhi in September, VW Group chief representative India, John Chacko, said the company will invest Rs 700 crore in its facilities in Maharashtra. The bigger investments from the company face uncertainty as a result of the state government’s decision to withdraw the VAT benefits on vehicles that are made in the state.

Under the prevailing norm, the state government refunds VAT on cars that are made in Maharashtra and sold anywhere in the country. Now, it has said that this benefit will apply only to cars sold within the state. This ruling affects all players here including Mahindra & Mahindra which makes both passenger vehicles and CVs from its facilities at Chakan and Nashik. This benefit, among others, was offered in order to counter the sales sops and other incentives that other governments, including Tamil Nadu, was offering the auto sector.

The western cluster is also home to Mercedes-Benz, India’s oldest luxury carmaker, which recently said its cumulative investments in the Chakan plant will cross Rs 850 crore by 2014. Set up in 2009, the plant, rated among Mercedes'top CKD plants globally, began operations of a new paint shop last month with an annual capacity of 20,000 units.

Maharashtra is also home to General Motors India’s Talegaon plant which is a flexi-facility that can roll out cars as well as engines. This month, the first China-designed car, the Sail U-VA will roll out from this facility and later in the year, the Chevrolet Enjoy. The plant also rolls out the engine for the Chevrolet Beat, which is one of GM’s most successful products in India.

Gujarat calling

In recent years, the focus on the western region has moved to Gujarat thanks to big-ticket investments by Ford Motor Company and Peugeot, the latter’s investment now delayed due to problems at its European operations. With its good roads network and ports, Gujarat is aiming to be a powerhouse in its own right. Who would have imagined that the establishment of the Nano at Sanand would create the impetus for the big names to consider setting up base there? Now, Maruti, Hero MotoCorp and Bajaj are keen on investing in the state, which is testimony to the quality of governance and infrastructure there.

Here’s another area where Maharashtra is lagging behind. The Mumbai-Pune Expressway, considered India’s finest, now has a strong rival in the form of the Yamuna Expressway. Many years ago, an infrastructure finance company had mooted a golden triangle of multi-lane highways connecting Mumbai with Nashik and Pune. Think about the impact that this could have. That has not yet seen the light of day and may never. Apart from roads, the issue of availability of electricity continues to be an issue for all companies in the area and that includes the auto sector.

What stands in favour of the state is the fact that the Pune-Chakan belt has several engineering colleges and given the more recent developments in the IT sector (centered around Hinjewadi on the outskirts of Pune), what's ensured is a pool of talent that can be nurtured for the requirements of the automotive sector. It will continue to be a challenging area for western India’s automotive sector.