Kia Motors is in discussion with Tamil Nadu government for the possibility of moving the $1.1 billion plant from Andhra Pradesh (AP), reports Livemint.
The South Korean car manufacturer had in past December opened their plant in AP, however the policy changes by the Jagan Reddy government is the reason behind this contemplation, says the report.
After the YSR Congress Party came to power in Andhra, the new state government wanted to review the incentives given out by the previous administration.
In July 2019 the new state government in Andhra, mandated companies to reserve 75 per cent reservation for all jobs for locals from the state, which made it difficult, hire suitable and qualified employees.
India is the fifth-largest car market in the world and Kia’s Andhra plant is its first in India with an annual capacity to manufacture 300,000 units that has led to creation of 12,000 direct and indirect jobs.
Tamil Nadu is the home of major autoparts suppliers in India and Kia is now in talks about potentially relocating the plant.
India’s second largest automaker Hyundai Motor Co, which holds 33.8 per cent stake in Kia motors, already has production facility in Tamil Nadu.
On one hand, this move will help reduce logistics costs by being near to parts suppliers while on the other, it could affect the car manufacturer’s production lines while moving from one state to another.
"(Kia) are facing problems (in Andhra Pradesh), they have been in preliminary negotiations with us ... There is a secretary-level meeting next week, we might have more clarity then," the official told Reuters on Wednesday (5 February).
Kia in a statement said, its commitment to the Indian market is long-term and it will utilise the full capacity of its Andhra plant "before considering further expansion". It further added, “We do not have any plans to shift the manufacturing facility from the current location."
The plant’s construction began in 2017 and was formally inaugurated it in December 2019. This plant is spread across 23 million square foot and currently manufactures vehicles like its Seltos SUV that have already hit the Indian roads and also exported for the overseas markets.
Rubbishing the claims, the official twitter handle of YSR Congress party said, “The news report of Reuters shocked us. We have cordial relationship with AP govt and our business is doing extremely well in AP.”
In a tweet sent out by the official handle of Telugu Desam Party (TDP) said, “What a shame! This is the saddest news of the decade. While one man works day and night to bring in companies and create jobs, another comes and destroys it all within 8 months.”
When YSR Congress Party took office in 2019, it decided to review agreements signed with several companies. One in particular was the renewable energy sector which making foreign investors jittery around sanctity of contracts in India which is seems violable to them.
Japan has huge interests in the renewable energy sector and the Japanese ambassador to India, told Andhra Pradesh not to renegotiate renewable contracts which is detrimental and would hit business sentiment in the region.
In 1999 The Foreign Exchange Management Act, was passed by Parliament that allowed to consolidate and amend the law relating to foreign exchange. The aim was to facilitate external trade and payments, promote the development and maintenance of foreign exchange market in India.
Most developed countries have strong laws to safe guard foreign investment against policy changes and Prime Minister Narendra Modi is already working on a foreign investor protection law to boost investment but the legal frame work is still a working process.
India is going through a slow growth phase and Kia motors considering moving its factory to a different state due to policy shift will not send the right signal investors for Andhra and India . Also the cost would be too high when the plant had just started its operation.
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