Skoda will invest in phases

Volkswagen''s Csech subsidiary Skoda Auto, whish has just secured the government’s approval for setting up a wholly owned subsidiary in India, will invest about $56 million in equity in the Indian venture. However, the cautious Czech car major will bring in the funds in a phased manner. It will invest $10 million in the first year, and $16 million in the second year. The balance $30 million will be brought in, possibly in the third year, once the operations are stabilised.

The company is adopting a conservative approach in its production plans. It believes that the Indian car market will stagnate for a while and, therefore, it prefers to make a slow start and plan for rapid growth a little later. It will initially create a manufacturing facility to make 10,000 vehicles a year. And production will be restricted to just 6,000 vehicles a year.

Skoda envisages a higher import component initially. It has projected $400 million as import expenditure in the first five years of operations. But it also expects to earn an equivalent amount of foreign exchange from exports.

Octavia will be the first model to roll out from the Skoda stable in India. The car is unique. It can have use petrol or diesel engines in the capacity range of 1,600cc to 2,000cc. Skoda is not likely to introduce its popular Felicia and Fabia models in India at least in the first five years of operations.

Meanwhile, the company has told the government that it will divest eight to 10 per cent of its equity after two years. The company has started talking to Indian companies and financial institutions in this connection.