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Japanese carmaker Nissan is the latest foreign company pursuing international arbitration against India’s government, after losing patience over an investment incentive payment it believes it is owed by the state government.

According to two people with direct knowledge of the situation, Nissan’s planned action relates to an 2008 agreement with the government of southern Tamil Nadu state, which led to its opening of a large car plant near Chennai two years later.

Nissan believes the agreement entitled it to incentive payouts from the state government, but after two years of failed entreaties to both state and national administrations — including a personal appeal to Prime Minister Narendra Modi — the company is pursuing an award of $770m at international arbitration. Its decision was first reported by Reuters.

The group is now pursuing an international arbitration process.

The dispute is a further sign of the difficulties many foreign companies encounter in India.

Since coming into power in 2014, Mr Modi has opened Indian markets to foreign investment as part of a wider to make it easier to do business in the country.

This push helped India jump 30 places in this year’s Doing Business rankings published by the World Bank. The survey ranks countries according to the ease of doing business.

But these efforts have been marred by legal disputes with several international companies, especially over retrospective taxes.

Both Cairn Energy, the British oil and gas explorer, and Vodafone, the telecoms company, are involved in international arbitration cases against the Indian government, arguing that they should not have to pay taxes levied by the previous administration in New Delhi.

Last year in London, NTT DoCoMo, another Japanese group, won a $1.2bn arbitration suit against Indian company Tata Sons in relation to a failed telecom investment.

Nissan was part of a wave of foreign carmakers that opened plants in India over the past 20 years, betting on rapid growth in the country’s automotive market. Car sales in India reached about $35bn in the 2016 financial year, according to CLSA, making it the world’s fifth-biggest market.

Since the opening of its factory near Chennai in 2010, Nissan has captured only about 2 per cent of the Indian car market, but the factory has become an increasingly significant source of production for other countries. In February Nissan said it had exported 700,000 cars from the plant.

Nissan said: “We are committed to working with the government of India toward a resolution. Nissan is proud to play a role in the Make in India effort and we have created over 40,000 jobs in India, directly and indirectly, and contributed to the economic growth of Tamil Nadu where we have invested around a billion dollars.”

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