Mumbai: Tata Motors’ new super-cheap Nano cars should still be launched as planned next month, but a decision to look for alternative factory sites after violent farmers’ protests will push up costs and squeeze output.
A dispute over land given to the firm in communist-run West Bengal state forced Tata Motors, India’s top vehicle maker, to suspend work late on Tuesday at the plant where it planned to build the Nano, billed as the world’s cheapest car.
If Tata carries through on its threat to pack up and leave, the company will face further expense as it scouts for spare capacity at its existing sites and relocates plant and machinery.
“But, whatever happens, it is likely to stick with its planned launch around October,” said Abdul Majeed, partner at PricewaterHouseCoopers.
“Everyone’s watching, and now there’s even greater attention, so the launch will likely go on as they have indicated,” he said.
The plant in Singur, about an hour’s drive from West Bengal capital Kolkata, was intended to have an initial annual capacity of 250,000 units, which could be scaled up to 350,000 units.
Majeed added that the company was likely to use its plants in Pune in western India and Pantnagar in northern Uttarakhand state for the initial rollout if no compromise can be found in West Bengal.
“But capacity, at least initially, will be a constraint as they can’t have dedicated capacity of 250,000 units for the Nano, like in Singur,” he said.
Small car, big problems
Business leaders raced to defend Tata’s decision to halt work and there is no shortage of state leaders willing to roll out the welcome mat for the high-profile project.
“The dispute sent a wrong signal to Indian industry as well as to international investors,” said Vijay Mallya, chairman of alcoholic drinks major UB Group. Suppliers rallied behind the firm.
“We are there for the Tatas. If Tata goes, we too will go,” said L. Ganesh, chairman of the Rane Group, which has invested about Rs2 crore in the Singur project.
But the standoff between India’s second-largest conglomerate and poor villagers unwilling to part with their farms reflects a larger challenge, expanding industry without alienating the 650 million people who live off the land in Asia’s third-largest economy.
The glitzy unveiling in January of the snub-nosed Nano grabbed headlines around the world and was hailed by the state’s ruling communists, and the project had been billed as key to the rejuvenation of industries in West Bengal.
Trouble began after the state government took over 1,000 acres of private farmland for the factory. The government offered compensation, but some farmers say it was insufficient and have demanded almost half be handed back.
Tata Motors expects eventual demand of 1 million units for the car that will be priced at a little above Rs1 lakh but delays have already pushed up initial investment costs to more than Rs2,000 crore from a planned Rs1,500 crore.
A company spokesman declined comment on the launch of the Nano and said he had nothing further to add on plans for relocation.
Shares in Tata Motors have fallen about 42% this year on concerns about a fund-raising plan and a gloomy outlook for the industry.