Tata's Nano dreams remain in limbo

Car maker suspends work at its plant after the state government gives into activists' demands to forfeit land.

Mamata Banerjee, the Trinamool Congress Party chief, is emerging as the leader of farmers all across India.

India's Tata Motors will suspend work on its £190 million (Dh1.3 billion) Nano production plant in West Bengal after the state government gave in to demands to forfeit part of the company's site to farmers. The move comes after Mamata Banerjee, the opposition Trinamool Congress Party chief, ended her two-week siege of Tata's plant on Sunday evening, when West Bengal's leaders agreed to grant new land to farmers who refused the government's compensation deal in 2006.

The car maker, based in Mumbai, will not be required by the government to relocate the factory that will produce the Nano, the world's cheapest car. However the company has already indicated it may do so, a scenario more likely as it will now have to forfeit part of the 400-hectare site, potentially delaying and pushing up the price of the car. A spokesman for the car maker said yesterday: "Tata Motors is distressed by the limited clarity on the outcome of the discussions between the state government of West Bengal and the representatives of the agitators in Singur.

"In view of [this], Tata Motors is obliged to continue the suspension of construction and commissioning work at the Nano Plant. "We will review our stated position only if we are satisfied that the viability of the project is not being impinged, the integral nature of the mother plant and our ancillary units are being maintained and all stakeholders are committed to develop a long-term congenial environment for smooth operations of the plant in Singur."

Last Tuesday, Tata said it was drawing up a "detailed plan" to relocate the plant it had built to produce the Nano - the world's cheapest mass-produced car with a price tag of just US$2,250 (Dh8,257) - in response to the blockade of the plant imposed by Ms Banerjee. It had previously removed all staff from the factory in the village of Singur, about 30km from Kolkata. In a statement after talks ended on Sunday, Gopalkrishna Gandhi, the governor of West Bengal, said: "The government has decided to respond to the demands of those farmers who have not received compensation."

Ms Banerjee's deputies said the deal would include returning about 40 hectares of the company's site. Tata had previously resisted ceding any land and had refused to hold public meetings with the protesters, saying it was a dispute between the political parties of West Bengal. Buddhadeb Bhattacharya, the chief minister of West Bengal, offered Tata extremely attractive terms to lure it to the notoriously strike-prone state. Tata became a world name after announcing in January its plan for the Nano car, which will bring car ownership within the grasp of tens of millions of Indian consumers.

The project has spawned a new subsection of the car market, with almost all other major companies operating in India launching plans for their own low-cost cars. Renault has embarked on a project in partnership with the Indian motorcycle manufacturer Bajaj, while Fiat, Ford, GM Hyundai and Toyota are also working on designs. But the troubles at Singur may see the vehicle's full-scale launch delayed beyond next month, when Tata had hoped to bring the first cars out. It may also see the company struggle to meet the 100,000 Indian rupee (Dh8,257) price tag for the car - already a tall order given recent rises in raw material costs.

Before the siege, the Tata factory was more than 80 per cent complete. An apprentice engineer from one of the villages affected said the company had already produced about 600 of the car's innovative two-cylinder engines at the plant. It had been testing them when the plant was evacuated. Three completed Nanos are already at the Singur site. To meet the huge demand expected, Tata is expected initially to also produce the car at other facilities in the states of Maharashtra and Uttarakhand.

The Trinamool Congress Party, which means "grass roots", had been demanding that Tata and the West Bengal government hand back 40 hectares of the site acquired from farmers for the factory, claiming to represent 2,251 of the site's 13,051 farmers who refused the government compensation deal. The struggle may not yet be over. Trinamool and West Bengal's ruling Communist Party have set up a committee, with two members from each side to work out the details of the deal in the next week.

During that time, Tata has agreed not to allow its parts suppliers to continue construction of their facilities, which are on land within the site that may be returned. Trinamool has suspended its siege of the factory. Ms Banerjee almost sabotaged the deal with last-minute demands on Sunday, and she could spring more surprises this week. The victory will add to the appeal of the land issue as a vote-winner to India's populist politicians. This threatens to further slow the process of industrialisation that India started belatedly in the 1990s, after decades of restrictive government control.

In the nearby state of Orissa, protesters are preparing a state-wide strike next week against a steel project planned by Korea's Posco, the world's fourth-largest steel maker, and a bauxite mine planned by the Indian-owned, London-listed miner Vedanta. [e-mail]