Maruti Suzuki India, India's largest car maker, is set to sign an agreement with Gujarat government on June 2, ending a five-month-long uncertainty over its proposed facility near Mehsana in north Gujarat.

Maruti is expected to set up an initial capacity of 2.5 lakh cars per annum that would gradually be scaled up to feed demand from domestic market and export commitments. Under the proposed agreement, Gujarat government will allocate 500 acres to the carmaker for setting up its first facility outside Haryana, one senior official in the state industries department said. "The June 2 agreement will enable the company execute its strategic plans in the state," the official said.

Maruti plans to develop a capacity to produce 20 lakh cars per annum in Gujarat in phases and will initially invest Rs. 6,000 crore initially along with its vendors and suppliers. The Bechraji facility will be the Maruti's seventh manufacturing unit and is expected to start production in next five years. It currently operates three plans from its principal facility in Gurgaon and two more from Manesar where one more plant is coming up.

The Narendra Modi government in Gujarat wants to make the state an auto hub. Auto firms like General Motors, Asia Motor Works and Tata Motors have facilities in the state. Tata's Nano was launched two years ago within one year of its signing a state agreement. Ford Motors too has started work on their car project in the neighbourhood of Tata's Nano plant in sanand near Ahmedabad.

It was on May 31, 2011 that Maruti Suzuki India chairman RC Bhargava announced the choice of Gujarat for future expansion. However, in January this year, there were speculation that Maruti might go slow on its expansion plans in Gujarat. The speculation will end with the...