The state of Gujarat's plans to become a huge auto hub has received a jolt after French carmaker PSA Peugeot Citroen announced its decision to return the 600 acres of land it had taken from the state government to build its Rs.4000 crore car plant.
PSA Peugeot Citroen was allotted 600 acres of land in Sanand to build its first Indian car plant. The French carmaker had promised an investment of more than Rs.4000 crores. The company had even conducted a ground breaking ceremony for the new plant. There was little progress after the financial troubles in Europe started affecting PSA Peugeot Citroen.
PSA Peugeot Citroen is Europe's second largest carmaker. It is under severe financial burden after its sales in its primary market collapsed due to the on going recession. PSA is said to have decided to focus on improving its condition in its home market before it ventures in to investments in India. Reports say PSA's Indian plans have been put on hold indefinitely.
PSA's Gujarat plant would have been the used to cater to the growing Indian car market as well as to export cars to right hand drive markets such as Australia. But the whole plan has gone for a toss as PSA Struggles with its worst financial crisis in over a century.
The Gujarat government has also been notified about PSA's plans. The carmaker has reportedly stopped making the periodic payments it was supposed to make to the government as per the State Support Agreement it had signed in September last year.
PSA has indicated that it will not focus on Gujarat at least for the next three years. Its primary goal is to set right its European operations. It is looking to develop a turn around strategy that is aimed squarely at Europe and India does not figure in the plan.
This is the first time an international car brand is moving out of India after announcing a sizable investment. Several carmakers have made a beeline for India to set up plants attracted by incentives from the government and availability of inexpensive yet talented work force.
PSA had initially planned to launched the 508 mid size sedan in India by 2014 and then move on to build other B-segment cars in the Gujarat plant. These plans will now be on hold for a really long time.