Tata Motors is to challenge a government decision to reclaim the land it had acquired to build its Nano budget model.
It says that conflict over land is the biggest block of rapid expansion in the fast-growing Indian economy.
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Tata in 2008 abandoned the 95%-complete plant, built on the land in eastern West Bengal state to manufacture the Nano, after violent protests by farmers.
Returning the land to farmers was a central point of the campaign by the populist Trinamool Congress party during elections in the state in April which saw voters throw out a three-decade old communist government. Trinamool is the largest ally of the federal ruling Congress party.
Tata spokesman Debasis Ray said the company would contest the decision by the local government in the High Court in Kolkata, the capital of West Bengal.
Reuters noted that several multi-billion dollar projects are being delayed in India as poor farmers resist the forced takeover of their land, often at prices below market value. Analysts warn this could deter foreign direct investment and hold up plans for industrialisation in the country.
Major companies are forced to look at each of India’s 28 states when deciding where to invest as rules, often opaque, differ from state to state, a fact that often deters investors.
Earlier this week, local protests forced authorities to stop acquiring land for South Korean POSCO’s US$12bn steel plant in eastern Orissa state, further delaying what would be the single largest foreign investment into India.
Federal and state governments have dithered on taking firm decisions, mindful of the wrath of the over 500m farmers who make up their core vote base, but also wanting to accelerate economic growth.
Economists, bankers and industrialists have warned that without structural reforms, India could go into a slump that would be difficult to recover from. The government is planning a new land acquisition law that will give farmers market or better rates for their land, taking off the edge from protests. The current law gives little or no compensation for land taken over for a “public purpose”.
