Multinational car makers such as Skoda, Toyota, General Motors and Hyundai are eager to cash in on the 150 per cent tax deduction on in-house research and development announced in the Union Budget 2004-05 by setting up new facilities or expanding their existing R&D activities.

Though home-bred companies such as Tata Motors, Mahindra and Mahindra Maruti Suzuki, Bajaj Auto have made major investments in setting up in-house R&D facilities and undertaking full-fledged product design and development in the country, foreign companies have confined their R&D activities to homologation and localisation of international models for the local market.

The size of the Indian market, a vast intellectual pool and a large number of tier-I and tier-II auto component suppliers make India an ideal destination.

"Skoda Auto is planning to open up R&D units in the near future inspired by the recent Union Budget announcement," said a company spokesperson.

The company is also accelerating localisation in its cars. Once this is done, there will be possibilities for full-scale development of Skoda cars in India for south-east Asia and emerging markets.

Though it does not have any concrete plans yet, Toyota Kirloskar Motor wants to explore if there is an opportunity to move some of its R&D to India.

"We are clear about one thing that we would like Toyota India to be involved right from the beginning when it comes to the development of the next generation of cars," said Atsushi Toyoshima, managing director of Toyota Kirloskar Motor.

General Motors, which has undertaken core R&D work in Bangalore, is also planning to expand its research activities in the country in line with its expansion plan. The company is working towards expanding its engineering base in India.