Mumbai, July 22: The Maharashtra government will be sacrificing Rs 400 crore of annual sales tax revenues for bringing Fiat's Palio project to the state. Promoted jointly by Fiat Auto of Italy and the Vinod Doshi family, the Rs 2,000 crore car project will be commissioned at Ranjangaon in Pune district.

Top sources told The Financial Express that the state government had issued a notification on June 20 under which mega projects costing over Rs 1,000 crore will be given sales tax exemptions for 14 years. The move is clearly intended to attract capital-intensive industries to set up shop in Maharashtra.

The Palio project will be the first major beneficiary. The Rs 400 crore revenue loss computation on the Palio is based on the assumption that 30 per cent of the cars produced will be sold in Maharashtra, which levies a 10 per cent sales tax. The balance 70 per cent sales outside the state would attract a four per cent sales tax concession. These rebates could be extended for another seven years if the venture is unable to utilise its full incentives upto 100 per cent of fixed capital investment.

The government has agreed to allot 85 hectares for the project at a concessional rate of Rs 250 per hectare. The state will provide telephone connections and power supply on demand.

These are not the only sops that are being offered to the project. The government has agreed to the demand of the partners that tooling equipment will be housed with the vendors in their premises and not in the main Palio factory. This will ensure flexibility in operations, availability of components and ensure vendor development.

A delegation from Fiat met Chief Minister Manohar Joshi here on Tuesday and formally agreed to settle for Ranjangaon. The land acquisition will be finalised in a month. The Italian carmaker was also considering Shendre in Aurangabad as a possible site for the project, but decided against it as it was not strategically located.

Sources say Maharashtra had little option but to yield to these demands as other states were in the fray to bag the Palio project. Gujarat Chief Minister Shankarsinh Vaghela had literally spread the red carpet to Fiat and asked them to list out the concessions they desired. Rajasthan had followed suit and a delegation from the state met officials of Fiat in Turin to bring the project to that state.

Maharashtra has still been nursing its wounds after losing two prestigious projects to Tamil Nadu and Karnataka. Volvo and Mahindra-Ford were tipped to settle for Maharashtra but their volte-face stemmed from the more generous incentives offered by the other states.

Chief Minister Joshi had, at that time, dismissed these "losses" as being of little significance and reiterated that Maharashtra would not join the bandwagon by offering such incentives. The harsh truth, sources say, was that most companies, especially automobile majors, were precisely looking for such sops.

The Palio project has changed all that and the state government now realises that it will have to work hard to to ensure that other companies will also establish their manufacturing operations here. Escorts has already decided to set up its Rs 250 crore tractors complex in Ranjangaon as also John Deere of the US along with Larsen & Toubro.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.