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Tata Could Flee West Bengal

Murali Krishnan 04/09/08September 4, 2008

Work at the nearly-completed Tata Nano plant was suspended this week when Tata declared the site in Marxist-ruled West Bengal too risky for staff because of violent protests by farmers, who say they have been forcibly evicted to make way for the factory. Tata Motors is now seeking new sites to build its 100,000 rupee or 1,500 euro mini-car, billed as the world's cheapest. The decision to relocate would be a grave blow to India's effort to attract investors.

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The launch of the Tata Nano could end up being delayed indefinitely
The launch of the Tata Nano could end up being delayed indefinitelyImage: AP

The West Bengal government is on the verge of losing Tata Motor’s Nano production plant, which would be a serious blow to a state that is already struggling to attract economic investment.

For the Nano itself, the problem could be more critical -- there's no telling how long such a scenario would delay the car's launch. The 250 million euro plant to build the car was almost ready to open when the farmers’ protests halted work.

S. K. Arora of the Federation of Auto Component Manufacturers thought the Tatas might have to “start from scratch” if the plant relocated: “The Nano has a different engineering -- you cannot produce a distinct car at a Nano price.”

Millions in losses

If the plant fails to open, the immediate financial loss will be of over 900 million euros, including the investments on ancillary units in Singur. Tier II vendors, which will have no reason to remain if Tata moves out, could also suffer huge losses.

Another loser would be Lumax Industries, which has been setting up a new manufacturing plant in Singur, from where it was planned it would to supply components to Tata Motors.

Tata senior corporate executive Manish Jain was philosophical about the possible shutdown of the Tata Motors plant saying that whatever the loss to “Tata Motors or Lumax, it would be within the family”.

Domino effect

But the losses could be considerable. Other Tata brands such as Tata Realty Infrastructure, Tata Metaliks and Maithon Power could also end up taking flight, amounting to a loss of at least one billion euros. There are other big-time investors who are also getting jittery, including Indonesia’s Salem Group, Bata and billionaire financier George Soros.

The governor of the state of West Bengal, Gopal Gandhi, has decided to mediate with the party that is spearheading the anti-Tata protests -- the regional Trinamool Congress.

He also said he was also hopeful about discussions with Tata owner Ratan Tata: “I am not the only one who is hopeful. Everyone wants this to succeed. We will see how it will go. I have written to him [Ratan Tata] to say that it would make sense if the Tatas were to associate themselves with this process as they are invited to do so by the government.”

Spotlight on industrialisation

As evicted farmers square off against giant Tata Motors over land seized to build the Nano, India's industrialisation strategy has once again come under the spotlight.

Industrialisation has long been championed by economists as a way to pull tens of millions out of poverty. But across India, land for factories has often turned into a battleground.

There has also been violence in the state of Orissa over the plans of South Korean steel giant POSCO for a eight billion euro steel plant and other plans for Special Economic Zones, a part of the big push for industrial expansion.