Tata Motors Abandons Controversial Site

Wall Street Journal - October 4, 2008

Tata Motors Abandons Controversial Site

MUMBAI -- Tata Motors Ltd. said it will abandon a controversial plant site where it planned to build the world's cheapest car -- the Nano -- after sometimes violent protests made it too difficult and dangerous to proceed.

The move followed weeks of demonstrations by dispossessed farmers and political activists against the plant in India's impoverished West Bengal state. The protests forced a halt in construction at the site last month.

Tata's decision underlines a thorny issue for manufacturing investors in India: poor local communities -- sometimes backed by political or environmental activists -- are often suspicious of industrial projects planned for their regions, despite the promise of job creation and stimulation of local economies.

Although it has invested more than $300 million in its West Bengal factory, about an hour's drive from Kolkata, Tata said it had decided to relocate production of its $2,500 Nano minicar to another locale. The company said several Indian states expressed interest, but added that it hadn't yet selected an alternative site. The West Bengal site was expected to eventually generate almost 20,000 jobs.

While Tata Motors' plant in West Bengal was just months away from rolling out its first Nano, the protests by local farmers and politicians convinced Tata to cut its losses and move production, according to Ratan Tata, Tata Motors' chairman.

Protesters were demanding that more than 300 acres of the 1,000 acre site be returned to farmers who were forced by the state government to give up land.

"We don't see any change" to the opposition, Mr. Tata said. The relocation "was done for the well-being of our employees, safety of our contractors and vendors."

Negotiations between the state and farmers were going on for months, but few farmers were willing to accept more money or different tracts of land as compensation for their property. Meanwhile, Tata Motors said its project would lose money if it had to give back any land.

Tata Motor's inability to save its project -- despite the government's backing as well as its own reputation as one of the most powerful and socially responsible companies in India -- shows how set some rural dwellers and politicians are against the changes being triggered by India's rapid growth.

As India's economy has expanded more than 8% a year recently, local governments and businesses are increasingly asking rural dwellers to make way for new industrial complexes.

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Santanu Choudhury contributed to this articl