Memo to India: Not a good way to conduct business.
In a report just released by Reuters, Nissan has begun the process of international arbitration against India in order to receive more than $770 million due to a dispute over unpaid state incentives. Wait, an automaker is suing a country? Yes. Apparently this dispute dates back to 2008 when a different Indian government was in office. Nissan and India, as part of that agreement, decided to jointly set up a car production facility in the southern part of the country. Makes sense to have India-only market Nissans built in India.
As is typically the situation, a country will offer an automaker various tax incentives to set up shop locally. Jobs are created, local economy gets a solid boost, and the automaker is able to save money in various ways. Everybody wins. But the problem Nissan has with India is that it hasn’t been paid the incentives it was promised. $770 million isn’t just something that can be forgotten. India originally agreed to make the payment to Nissan in 2015, but it never arrived. Nissan repeatedly made requests to Indian officials, and they were largely ignored. Even Nissan CEO Carlos Ghosn personally got involved when he asked current Indian Prime Minister Narendra Modi for the money. That effort didn’t work either.
Nissan’s lawyers kept up the pressure and several Indian officials assured the automaker the money was coming, and it would not be necessary to bring a legal case. Still, no money. Finally in August, Nissan had enough. It gave India an ultimatum to appoint an international arbitrator, with the first arbitration hearing set for mid-December. Nissan claims India has violated the Comprehensive Economic Partnership Agreement with Japan. Nissan isn’t the only automaker with facilities in India. Ford and Hyundai also have production plants there, and the state capital Chennai is even nicknamed ‘Detroit of South Asia.’ India must now find a way to pay Nissan and reassure other companies it’s a good place to do business.