Tata Motors Scraps Factory for World's Cheapest Car on Protests

By Vipin V. Nair

Oct. 4 (Bloomberg) -- Tata Motors Ltd., India's biggest truckmaker, abandoned its newly built factory for the world's cheapest car because of violent protests by farmers, hampering plans to start selling the $2,500 vehicle this year.

Tata Motors will move equipment and machinery from Singur in West Bengal state to a new location to be decided later, Chairman Ratan Tata told reporters in Kolkata yesterday. The company has yet to evaluate how much of the 15 billion rupees ($319 million) invested in the project will be lost, he said.

``We have taken this decision because we do not see any change on the horizon,'' Ratan Tata said. The company will strive to meet this quarter's deadline for Nano sales, he said.

Shifting to a new site may hinder Tata's challenge to Suzuki Motor Corp., maker of more than half the cars sold in India, before new entrants including Renault SA start selling low-cost cars. Ratan Tata, 70, conceived the Nano project to lure the nation's 45 million motorcycle and scooter owners to upgrade.

``It's a big setback for Tata Motors,'' said Gaurav Lohia, an analyst at KR Choksey Shares & Sec Pvt., who has a ``buy'' rating on the company's stock. ``I expect the production and rollout of the Nano to be slowing down.''

Tata Motors fell 9.15 rupees, or 2.7 percent, to 330.5 rupees in Mumbai trading yesterday before the announcement. The shares have declined 54 percent so far this year, compared with the benchmark index's 38 percent drop.

Land disputes, protests by environmental groups and delays in getting government approval have stalled projects across India including a $12 billion steel plant planned by Korea's Posco.

Trinamool Congress

Tata Motors on Aug. 29 halted construction of the factory and threatened to pull out of the site after local political party Trinamool Congress party rejected compensation proposals by the West Bengal state government for farmers.

In August, at least 2,000 men and women, mostly illiterate, protested in front of the Tata Motors factory at Singur, about 1 1/2 hours north of Kolkata. The Trinamool party blocked roads to protest the land compensation package for the farmers.

The party didn't oppose the 600 acres of land where the Tata Motors plant was under construction, according to its leader Mamata Banerjee. The balance of about 400 acres of land acquired for vendors must be returned to farmers, whose livelihood was taken away by the plant, she said.

The Communist-led government in West Bengal state had said it was ready to compensate farmers by returning about 70 acres (28 hectares) of land already given to Tata Motors and its component-makers. The state also offered to increase the cash payments by 50 percent for the people who gave their land.

`Integral' Project

Tata Motors had said the project was ``integral'' and the plant couldn't be constructed without vendors getting facilities.

``The Nano is a unique project,'' said Tarun Das, chief mentor of the Confederation of Indian Industry, the country's largest business grouping. ``Any forced change to its plan of implementation will delay the launch of the Nano and also impact the cost,'' Das said in a statement Oct. 2.

Tata Motors last month said it's ``actively'' looking for alternatives to the factory in Singur. The automaker got an offer for 1,000 acres of land and other incentives from the southern state of Karnataka, Managing Director Ravi Kant said Sept. 18.

Sri Lanka, India's neighbor, also offered land to Tata Motors to set up the Nano factory, the nation's Investment Promotion Minister Sarath Amunugama said.

One of two cars sold in the country is made by Suzuki's local unit Maruti Suzuki India Ltd. In comparison, Tata Motors controlled 13.9 percent of the market in the year ended March 31, making it the nation's third-largest automaker.

To contact the reporter on this story: Vipin V. Nair in Mumbai at Vnair12@bloomberg.net.