Mahindra & Mahindra (M&M), one of the largest automakers by production in India, has decided to put a halt on further investment in Maharashtra as the state government has changed its incentive policy. According to original investment policy, Maharashtra government had announced VAT refund for those automobile companies that are interested in investing in the state. Maharashtra government has now stated that VAT refund would be offered only on the automobiles sold within the state.
This change in policy will hit Mahindra quite hard as it sells only 16 per cent of its total passenger vehicles in the state. The new policy has prompted M&M to put a hold on its plan to invest further in its Chakan facility near Pune. Subsequently, the company has declared its decision to set up a new facility in Tamil Nadu.
According to sources, the company has asked Maharashtra government to clarify its incentive policy so that it can move on with its plan of investing in another state. If the reply by the government turns out to be unsuitable for the company, it will move out from Maharashtra by next month. Reportedly, Mahindra & Mahindra is planning to invest close to Rs. 4,000 crores in the new plant.
Mahindra & Mahindra is not only one that is pulling out of Maharashtra, as other auto makers are following suit as well. Ford India and Maruti Suzuki India Limited (MSIL) are planning to move to Gujarat and Nissan Motor India is eyeing Chennai. The two-wheeler manufacturing branch of Honda is establishing a facility in Andhra Pradesh.
It is expected that Maharashtra government will clarify its incentive policy as any uncertainty will affect its own revenues. As such, the government should bring in policies that can encourage major automobile firms like Mahindra & Mahindra to invest in the state instead of moving out.
