Global Insight Perspective | |
Significance | Ratan Tata, the chairman of Tata Motors, has said that although the Singur facility is close to completion, he may be forced to pull the Tata Nano project out of the West Bengal region if violent protests continue. These comments came just prior to the Trinamool Congress starting what it has called a period of "indefinite agitation" outside the factory as it calls for the return of 400 acres of farmland. |
Implications | Although a decision as to whether the Nano project will remain in West Bengal has yet to be made, the threat of a withdrawal from the region will come as a shock to many given the investment that Tata has already made and how near to completion the factory is. |
Outlook | Given the cost and time implications of building a new plant elsewhere in India to house the Nano project, it seems unlikely that the automaker will take such a drastic step. However, the threat may be enough to persuade the West Bengal government to give in to the demands of the local political party. |
Tata Motors has threatened to withdraw its plans to build the ultra-low-cost Nano model in Singur (West Bengal) should violent protests against the project continue, reports the Economic Times. The chairman of the automaker, Ratan Tata, said on Friday (22 August) that he would be prepared to move the manufacturing operations despite the investment that has already been made in West Bengal. In a statement after the Tata Tea annual general meeting, Tata told journalists that, "If there is a view that for various political reasons, we should not be here or what we are trying to do should be altered, which cannot be, then we would necessarily face an issue, very reluctantly, where we need to move. If anybody is under the impression that because we have made this large investment of about 15 billion rupees we will not move, then they are wrong. It is not a hypocritical investment. We would move whatever is the cost, to protect our people." He went on to say, "Please understand, I am making a very genuine statement. I don’t have a motive, I don’t have a plan that I am working on. I have made a major investment here. To move, would be at a great cost to the company, great cost to Tata Motors shareholders and I think it is also going to be a great cost to West Bengal because I don’t know how many 15 billion rupee investments would come to the state."
When asked whether the company would return the 400 acres of land that is being demanded by the Trinamool Congress political party, Tata said, "It’s not for us to negotiate that", but he pointed out that the farmers who had been removed from the land would not have been able to cultivate any crops over the past two years as the site "has been a lake".
States Queue Up as Replacement Locations; West Bengal Adamant on Nano Launch
Following the statement by Ratan Tata, a number of state governments have said that they would like to be considered as a replacement should Tata leave West Bengal. Among these are:
- Punjab: Industry Minister Manoranjan Kalia has told the media that he would "soon write an offer letter to Tata to formally invite the group to install its Nano plant in Punjab, for which every possible facility will be provided by the state government".
- Andhra Pradesh: Chief Minister Y S Rajasekara Reddy has made a formal proposal to host the Nano project, indicating that land is available on the outskirts of Hyderabad, Visakhapatnam, Kakinada, or Naidupet near Guntur. Principal Secretary (Industries) Busi Sam Bob added that the price of attracting the firm is not an issue.
- Maharashtra: Tata's "home" state. Vilasrao Deshmukh, chief minister of the state, said, "We will be happy to play host to Tatas yet again" and that Tata "will be accorded red carpet welcome to set up the project in Maharashtra and will be given land and necessary facilities".
- Orissa: Chief Minister Naveen Patnaik told journalists over the weekend that, "If they approach us we will see", but the opposition Congress leader, J B Patnaik, issued an open invitation to Tata to move the project to Gopalpur in Orissa's Ganjam district.
However, despite Tata's statement, the chief minister of West Bengal, Buddhadeb Bhattacharjee, has said that the first Nano will roll off the production lines at Singur in October as scheduled. He told the Press Trust of India that "some state governments have offered land to the Tatas to shift their small car plant from Singur, but I would like to assert that the project will be a reality", adding, "I hope it will be implemented in time and the first car will roll out in October. Nobody can obstruct it."
Trinamool Congress Begins "Indefinite Agitation"
In the meantime, the Trinamool Congress party, led by Mamata Banerjee, began its peaceful "indefinite agitation" yesterday as promised. Thousands of protestors are said to have gathered outside the walls of the Singur facility in protest at the West Bengal state government’s compulsory acquisition of land from farmers to enable Tata to build the plant. Protesters are calling for the return of 400 acres of the land that is not currently being used.
Banerjee told journalists that she does not want Tata to leave the area, but is asking the company to restrict the size of the factory to the 600 acres that it is currently using. She has proposed instead that the company be allotted 500 acres of low-lying land near the project site where ancillary units can be built, adding that if the government agrees to the compromise the party will show it its plans.
Outlook and Implications
Although Tata has yet to make a final decision on whether the Nano project will remain in West Bengal, the mere suggestion that it is thinking of pulling out of the region is likely to shock many people given the investment that it has already made and how near to completion the factory is. There had been previous reports that the company might need to begin building the Nano at one of its other facilities first should the Singur factory not be finished on time, but this latest threat is much more worrying for the West Bengal government.
However, the likelihood that Tata will actually take such a step is very remote. The decision to build a new facility elsewhere in India, despite the potential incentives that rival states could offer, would leave a massive hole in the project’s balance sheet, which would further jeopardise the already uncertain profitability of the project. On top of this, it would take another two years to build a new facility capable of building the vehicle, and even if the model were in the meantime manufactured at one of Tata's other sites, it is unlikely that it would be able to keep up with demand and massive bottlenecks could well occur. A change of location could further blight profitability as component suppliers that have built facilities next door to the West Bengal plant are unlikely to want to follow the automaker again, and this in turn would increase costs as components would have to be shipped further to the new facility.
A decision by Tata to pull out of West Bengal would hamper the state government’s plans to increase industrialisation. This is one of the biggest investment projects ever located in the state, and if Tata were to pull out now it is unlikely that the government would be able to attract other companies in future. However, the state authorities now seem to be caught between a rock and a hard place. Tata's decision appears to be dependent on the protestors’ actions, and the government has thus offered them a number of concessions in the hope of appeasing them, including additional compensation for the land taken and the provision of shops around the facility to serve the local community. The Trinamool Congress is still seeking the return of the 400 acres of unused land, however, something that the state government has said it cannot agree to. However, the local government now has to weigh up whether it is worth standing firm on this issue and risking the potential withdrawal of Tata Motors and the possible loss of further projects, which could harm its future growth plans.