India Inc. Rallies Behind Embattled Tata

The Indian company will shift production of its $2,500 small car. At issue in West Bengal was how Tata acquired the land for its Nano factory

By Nandini Lakshman

Chairman of the Tata group, Ratan Tata speaks during the 63rd annual general meeting of Tata Motors in Mumbai on July 24, 2008. INDRANIL MUKHERJEE/AFP/Getty Images

Ratan Tata, chairman of Tata Motors (TTM), maker of the highly anticipated $2,500 Nano small car, finally called it quits in Singur, in the east Indian state of West Bengal, where the car was to be manufactured. For some time now, local politicians and farmers in the state have been protesting against the land acquired by Tata for its factory to manufacture the Nano (BusinessWeek.com, 8/27/08). On Aug. 29, those demonstrations stalled work at the Nano plant, barely three months before its scheduled launch. Finally, on Sept 2, a Tata press statement said "the company is evaluating alternate options for manufacturing the Nano at other company facilities." Tata hasn't divulged where it will relocate, but possible locations include Pantnagar in the northern state of Uttaranchal; Ranjangaon, 125 miles off Mumbai, where it operates a joint-venture manufacturing facility with Fiat India; and the new plant coming up in Dharwad in southern India.

The implications of Tata's relocation are severe. Industry observers believe the politicization of the Nano project will most likely ground fresh investments in the Communist-led state of West Bengal. "Surely companies will think twice before going to the state. Corporate India can do without West Bengal, but can West Bengal do without corporate India?" asks Arun Maira, a senior adviser at Boston Consulting Group. The state received an estimated $20 billion in investments between January and June of this year.

India Inc. Gets Behind Tata

Nor does it augur well for India's image as an investment destination, particularly when the auto sector has been at its most robust. Over the years, foreign investors have found it tough to do business in India due to its politics. For example, social activists love picking on global cola makers Coca-Cola (KO) and Pepsi (PEP), which have been accused of selling products containing pesticides. The tough environment has led to many Indian businessmen flying overseas at the first opportunity.

Now they are voicing their concerns as well. There's been an unusual show of solidarity by corporate India, with many of the country's top business leaders rallying around Tata. "Seeing India's most legitimate and respected business group stymied by some politicians has shocked us," says Venu Srinivasan, chairman of Chennai bike maker TVS Motors (TVSM.BO). "There can't be a better human face of the industry than Ratan Tata."