Maruti Suzuki India Limited, (Maruti Suzuki), India’s largest car manufacturer yesterday announced their plans to set up a car manufacturing plant in Sri Lanka and are confident of starting operations as early as next year if all goes well.

According to the visiting Maruti Suzuki Chairman R.C Bhargava, feasibility studies are currently underway and also in talks with the Sri Lankan government on some regulatory clearances to get the project off the ground.

“We are trying to finish the studies towards the end of this year, and hope that the study will reveal the feasibility of doing the manufacturing job here,” he said addressing the media.

According to local regulations, there has to be at least 30 percent domestic value addition for an assembly plant. “The basic conditions operating in Sri Lanka are absolutely perfect for us to start work,” he added.

However Bhargava said the going concern of the new company would primarily depend on the commercial viability of the operation in the medium to longterm.

 “At the same time, we have to see the company set up here remains economically-viable. It should not be a non-viable operation where it becomes loss making year-after-year,” he said adding that they are prepared to wait at least 2 to 3 years before it breaks even. Maruti Suzuki is currently sold by its principle, Associated Motorways (Pvt) Ltd. (AMW) in Sri Lanka since 1992. It has enjoyed market leadership for the past 9 years consecutively.

According to AMW Group Managing Director Samatha Rajapaksa, they have sold over 60,000 Maruti Suzuki cars to-date.

Eventhough AMW was selling at least 1,300 Maruti Suzukis a month, the tax hike in April 2012 has brought down their monthly sales volume to around 250 cars. Maruti Suzuki today manufactures close to 1.2 million cars per annum.

Bhargava said the cars that are expected to be manufactured in Sri Lanka will be of same quality as in India. “The advantage to the consumer here essentially comes from the taxation that applies. So, if the government has a policy which charges a higher tax on built-up cars and a lower tax on components, clearly the government is encouraging manufacturing in the country,” he explained.

However he did not disclose details about the company structure, manufacturing capacity and investment, as the project report is yet to be finalized.

Several teams from India's Maruti Suzuki including component manufacturers have visited Sri Lanka to carry out the feasibility study. Bhargava is of the view that there has to be component manufactures to starting full scale manufacturing. “This is because if you start a car manufacturing project in any country, you have to have component manufacturing in that country also. Otherwise, it doesn't make sense if you have to bring all the components outside just to assemble,” he remarked.