Nissan sues India

According to a report in the Reuters, Nissan, the Japanese carmaker has begun formal international arbitration against India. The company is seeking more than $770m (£569m) in a dispute over unpaid state incentives.

Background

Nissan Motor Company is a Japanese multinational automobile manufacturer headquartered in Nishi-ku, Yokohama. The company sells its cars under the Nissan, Infiniti, and Datsun brands with in-house performance tuning products labelled Nismo. In 1911, Masujiro Hashimoto founded the Kaishinsha Motor Car Works in Tokyo's Azabu-Hiroo district. It was Japan's first automobile manufacturer. In 1914, the company produced its first car, called DAT. The name Nissan was only used in the 1930s.

Since 1999, Nissan has been part of the Renault–Nissan–Mitsubishi Alliance. In 2013, Nissan was the sixth largest automaker in the world, after Toyota, General Motors, Volkswagen Group, Hyundai Motor Group, and Ford. Nissan also happens to be the world's largest electric vehicle (EV) manufacturer, with global sales of more than 275,000 all-electric vehicles as of mid-December 2016. Nissan reported a net income of 452.8 billion yen for first nine months of FY2015.

"Our product offensive has reaped rewards in North America and Western Europe, where buoyant consumer demand and rising unit sales underpinned Nissan’s overall profit-growth," said Carlos Ghosn, president and chief executive officer at the time. "Our strong performance in these markets offset the impact of unfavorable exchange-rates from emerging markets and challenging market conditions elsewhere in the world."

Analysis

According to a report in the Reuters, Nissan, the Japanese carmaker has begun formal international arbitration against India. The company is seeking more than $770m (£569m) in a dispute over unpaid state incentives.

The issue is due to an agreement the company made with the Tamil Nadu government back in 2008. Nissan and its partner Renault, the French automaker had agreed to invest in setting a plant in Chennai (capital of Tamil Nadu) after the state government promised incentives. Tamil Nadu is home to several automakers including Hyundai. The state has often been referred to as the “Detroit of India.” Nissan now contends that despite having made the investments, the government did not pay the promised incentives. According to the company, it has invested in $946 million in the span of seven years and has set up a plant. This plant’s production line has the capacity of build 480,000 vehicles every year.

In the lawsuit, Nissan’s lawyers have argued that the government’s decision to not pay the incentives has caused the company to incur losses. A Nissan spokesman has not confirmed the report but did say that the company was “committed to working with the government of India toward a resolution.” Nissan said repeated requests to state officials for the payment, due in 2015, were overlooked and even a plea by the company's chairman, Carlos Ghosn, to Modi in March of last year seeking federal assistance did not yield any results. 

A senior Tamil Nadu state official said the government hoped to resolve the dispute without having to go to international arbitration. “There is no discrepancy with regard to the amount due, and we are trying hard to resolve the issue,” the official told Reuters.

According to the company, it has created more than 40,000 jobs both direct and indirect in the span of that time in India. The central government has not weighed in on the issue publicly. The Indian Prime Minister Narendra Modi has been aggressively trying to attract foreign companies to set up manufacturing units in India.

Assessment

Our assessment is that a formal arbitration between a top international company and the Indian government could negatively affect the Make in India campaign. The Indian Prime Minister has aggressively sought to attract foreign investments. It is imperative for the two parties to come to a settlement that is found favorable for all involved. State governments should also be extremely mindful while making guarantees for incentives to top international organizations. Unless there are resources to follow up on those promises, they shouldn’t be made.