The decision by Tata Motors to exit from its Nano production facility in West Bengal after protests over land compensation is a sign companies investing in India will need to pay heed to state politics and villagers in the large, complicated democracy.
Tata Motors, India’s biggest vehicle maker, announced on Friday that it was pulling out of the eastern state after having suspended work for more than a month in Singur, where it had planned to make 250,000 units of the Nano from this month onwards.
Protests by farmers unhappy with the compensation paid for their land by the state had led to a blame game between the state government and the main opposition party that backed the farmers.
But for investors in India, the lesson may be that state governments and companies will have to pay more attention to the needs of farmers in a country where industrialisation pressures are mounting.
“It is not that difficult to do,” said V K Jairath, an infrastructure consultant in Mumbai, pointing to states such as Maharashtra, Tamil Nadu and Gujarat, where large industrial projects are underway with little or no opposition.
“Ultimately, states have to come up with clear policies. Companies also have to get involved in the land acquisition and compensation procedure, alongside NGOs who can liaise with farmers and other stakeholders,” he said.
Unlike China for example, analysts say that India’s democracy of 1.1 billion plus people means industrial projects cannot just bulldoze through villages opposed to plans.
“In China, for example, if they say it will be done, it gets done,” said Mohit Arora, a senior director at auto consultancy JD Power & Associates in Singapore.
“Whereas in India, the policy framework can change frequently and without warning because opinion matters.”
Some economists say the reported compensation of 1.2 billion rupees (£14.46 million) offered by West Bengal government was too low, even after the state offered to raise it by 50 per cent, for villagers for whom land is the one precious asset they can hand down generation after generation.
Columnist Prem Shankar Jha wrote in the Hindustan Times that Tata Motors would only have to have increased the price of its Nano by around 250 rupees – a little more than $5 – to have afforded extra compensation to farmers of 125,000 rupees an acre.
“Today it is imperative for industrialists not to draw the wrong lessons from the Nano debacle. The poor will also be drawing their lessons from Singur.”
A colonial-era law that determines land acquisitions by states for undefined “public purposes” has led to a call for reform.
“Our land acquisition policy is flawed, the issue of compensation is extremely complicated and environment has become a global imperative now,” said Darryl D’Monte, chairperson of the Forum of Environmental Journalists of India.
Analysts have said the immediate effect of the Tata pullout would be limited to the communist-ruled state of West Bengal, which is already lagging other states in terms of investment.
But other states have also seen courts intervening to resolve disputes such as the grant of vast tracts of forest land for POSCO’s $12 billion (£6.6 billion) steel plant in eastern Orissa and mining rights for Vedanta Resources, also in Orissa.
As demand for land grows from industry as well as increasing urbanisation, there is also greater incentive for politicians and other vested interests to get involved, said R S Deshpande, a professor at the Institute for Social and Economic Change.
“The farmers are not in a good bargaining position in this equation, but at the same time there is also growing activism as civil society takes a more active role in development,” he said.