Singur factory pullout

After much speculation, Tata Motors announced on May 19, 2006 that it will be
manufacturing Tata Nano from Singur, West Bengal.[89] However, within a week
protests were started by a few farmers in the area against the acquisition of their
lands by Tata.[90] The cause was taken up by Mamata Banerjee, the leader of
Trinamool Congress.[91] The situation escalated with Tatas threatening to pull out,
[92]
and disruption of compensation for farmers who had volunteered to sell their
land by anti-acquisition activists.[93] This was followed by a state-wide bandh by
Trinamool Congress in October.[94] The government banned political parties from
holding meetings or processions at Singur and installed a huge police force there.
[95][96]
There was widespread violence in the clashes between the police and the
farmers on December 2, 2006.[97]
On December 4, 2006 Mamata Banerjee entered into a hunger strike. A 48-hour
strike was later called by her to protest the death of Tapasi, a Save Farmland
Committee campaigner, whose burnt body was found at the Nano plant site in
Singur.[98] Two CPM activists were later convicted and sentenced to life
imprisonment for the murder.[99] On the 24th day of her strike, Banerjee was given
oxygen support and finally called off her fast after appeals from the then President
Abdul Kalam and Prime Minister Manmohan Singh.[100]
As the protests over the land continued in 2007,[101] Ratan Tata accused that the
competitors had a role in the controversy.[102] The acquisition of land was initially
criticised in February 2007, but later approved by the Calcutta High Court in 2008.
[103][104]
As political unrest and rains hampered the construction, Tata Motors
delayed the launch of Nano to September 2008.[105]
Violence continued throughout 2008 [106][107][108] and on September 2, 2008, Tata
Motors announced that they have suspended work at Singur.[109] On October 2,
2008 Tata Motors announced that they are pulling out of Singur.[110] On October 7,
2008, it was announced that the Chief Minister of Gujarat, Narendra Modi had
signed an MoU with Tata Motors for allocating land for Nano factory in Sanand in
Ahmedabad district of Gujarat.[111]
[edit] Criticism, issues and problems
[edit] Questions of safety
The Times says:[30]

“ India has 8 percent of the world’s vehicle ”

fatalities and less than 1 per cent of its
 cars, with more than 90,000 people killed
on the country’s roads every year.
Introducing a million Nanos into the mix
may bring more – and unwelcome –
headlines.
Tata, which has the only crash-test
facility in the country, said that the Nano
"exceeds current regulatory
requirements". And while it is not a
deathtrap – it has crumple zones, seat
belts and strong seat anchors – it is worth
bearing in mind that total vehicle crash
testing (rather than just frontal impact),
airbags and antilock braking systems are
not mandatory.
Without these, the Nano would not even
be considered for approval in Britain.
Adding them would double its price in
India, which is why they have been
omitted.
Tata Motors will offer a version of the Nano with these safety-features, including
an airbag system in its electric version[citation needed]. The Nano has an all sheet-metal
body made from Japanese and Korean steel,[112] with safety features such as
crumple zones, intrusion-resistant doors, seat-belts, strong seats and anchorages,
and the rear tailgate glass bonded to the body. Tires are tubeless.[113]
West Bengal's Nano Impasse: A Roadblock for Tata – and
for Investment
Published: September 18, 2008 in India Knowledge@Wharton
The slogans on signs in Singur -- the West Bengal
site where Tata Motors plans to manufacture the
Nano, its $2,500 small car -- say it all. Most are in
Bengali, but the few in English capture the
overriding sentiment. "Nano No No," reads one.
"Atta not Tata," says another. Atta, which is flour
made from whole wheat, refers to the core
question of the dispute: Should fertile farmland be
requisitioned for industrial purposes? Does food get priority or factories?
According to faculty at Wharton and the Indian School of Business, the
impasse over the plant in West Bengal threatens to increase the Nano's
production costs and could delay its entry into the domestic market.
Moreover, they say, it will likely impact investment in the region, as
outside companies shy away from antiquated land laws and political
disruption.
As things stand today, work has been suspended at the Nano plant. Tata
has closed shop because, as chairman Ratan Tata told journalists in
Kolkata (formerly Calcutta): "I can't bring our managers and their
families to West Bengal if they're going to be beaten, if there is going to
be violence constantly, if their children are afraid to go to school."
Tata has faced trouble ever since it got the go-ahead for the plant on
May 18, 2006. Just a week later, there were angry demonstrations by
farmers objecting to the "forcible" acquisition of land for the project.
The Trinamool Congress, a political party led by Mamata Banerjee, who
has been spearheading the agitation against the Left-ruled West Bengal
government and the plant, even staged a hunger strike.
Matters came to a head recently, with the Nano due to roll out in
October this year. On August 24, the Trinamool Congress started an
indefinite protest at the factory gates and stopped all access to vehicles.
On September 3, Tata suspended work and said it was evaluating
alternative sites outside West Bengal.
Since then, the Trinamool Congress has called off the protest on the
basis of unspecified promises by the state government. Talks have been
held between the two sides, though Tata Motors has been left out of the
discussion. In a statement on September 8, the Tata Group said: "Tata
Motors is distressed at the limited clarity on the outcome of the
discussions between the West Bengal state government and the
representatives of the agitators in Singur. In view of the same, Tata
Motors is obliged to continue the suspension of construction and
commissioning work at the Nano plant. We will review our stated
position only if we are satisfied that the viability of the project is not
being impinged, the integral nature of the mother plant and our ancillary
units are being maintained, and all stakeholders are committed to
develop a long-term congenial environment for smooth operations of the
plant in Singur."
Jitendra Singh, a Wharton management professor who is currently dean
of the Nanyang Business School in Singapore, characterizes the standoff
in Singur as "essentially political blackmail." He says the issue is
broader than how it will impact Tata's ability to deliver a $2,500 car.
"While India has made a great deal of progress and the economy is
doing well, the weak leg continues to be its political system," he says.
There may yet be a face-saving formula worked out and Tata could
resume operations. But it is clear that trouble will strike again. The first
Nano will roll out of some other existing Tata Motors location. The plant
in Singur, even if it goes through, will play second fiddle.
Some are more optimistic. "I don't think that the Tatas will actually pull
out unless the situation worsens a lot," says Rajesh Chakrabarti, assistant
professor of finance, at the Hyderabad-based Indian School of Business
(ISB). "I think they will find a solution."
Paying a Price
If Tata Motors does pull out of Singur, it could cause the project cost to
increase and therefore impact the company's ability to produce a low-
cost car. But other factors have also changed in the external
environment, points out John Paul MacDuffie, Wharton management
professor and co-director of its International Motor Vehicle Program. "A
lot of things have happened to threaten the $2,500 price point," he says.
"Commodity prices have been going through the roof, and there are
other cost increases that are going to affect everybody. The real question
is: What cost increases are idiosyncratic and distinctive only to Tata that
might erode any kind of advantage they have?"
Singh agrees that the current crisis will eventually show up in the cost of
the car. But he says he wouldn't be surprised if Tata pulls out. "Of
course, it will cost them to do that, but better to do it now than to be
open to blackmail in the future. There will be a one-time relocation cost,
but I'm sure he will find another state willing to take the project."
MacDuffie believes the new costs brought on by the Singur standoff
could compel Tata to take a second look at its competitive edge in the
domestic Indian market. "There may be some Maruti products at the low
end of the market that will continue to be very strong price competitors
because they have such high volume and they have long-established
facilities, which are probably all paid for in India," he says.
Maruti will be the one to contend with as Tata tries to rein in the Nano's
costs. "Suzuki, Maruti's parent and the source of the design, is renowned
in Japan for having extremely cheap designs and extremely cheap
tooling, and they are very effective in running on the edge of what keeps
things from breaking down in order to [have] a cost competitive position
in the Japanese market," says MacDuffie. "That know-how will make
Maruti a formidable competitor at the low end of the market."
MacDuffie suggests that Tata needs to focus on limiting the Singur
damage to Nano's costs even as it fights competition on other fronts. "If
they can keep these idiosyncratic cost increases from becoming too large
and avoid too much delay, and also avoid too much publicity that
tarnishes them in a reputational sense, they should be in a good position
for the Nano to have a large impact first in India," he says.
Success in the domestic market is crucial to the Nano going global, says
MacDuffie. "Being successful in other developing markets probably is
dependent on a successful launch in India first for all sorts of reasons.
[The Tatas] need the volume, they need the experience, they need the
publicity of that success to come into other markets where they will face
domestic champion competitors."
But the Singur problem seems to have no easy resolution. Tata has been
given 997 acres of land, acquired by the state government under the
Land Acquisition Act of 1894. (This was challenged, but the courts have
ruled that the acquisition is legal.) Of this, some 645 acres is for the
mother plant and another 290 for a vendor park which will host various
ancillary units for the Nano. The remaining 60-odd acres are with some
state government agencies.
The Trinamool Congress and its partners were, in the beginning,
opposed to the entire acquisition. Today, it has no problems with the
mother plant. But it wants the vendor park moved elsewhere and the
land returned to the farmers. Tata, on the other hand, says that the
economics of the project won't work if the ancillary units are moved out.
The Rs. 100,000 Nano would end up with a heftier price tag.
"As part of the proposed integrated auto cluster in Singur, about 60 key
auto ancillary suppliers to the Nano have taken possession of land in the
integrated complex and have invested about $110 million towards
construction of their plants and procurement of their equipment and
machinery," says a Tata statement. "The project's auto ancillary partners,
who had commenced work at their respective plants in Singur, were also
constrained to suspend work in line with Tata Motors' decision."
Tata has also made significant investments. But Ratan Tata is prepared
to write them off. "If anybody is under the impression that because we
have made this large investment of about Rs. 15,000 million ($328
million), we will not move, then they are wrong," he told the Kolkata
Press conference.
Political Baggage
Speaking to a Tata Group magazine last year, Ratan Tata elaborated on
how the Singur problem evolved. "I think Singur has been an
exceptionally unfortunate and unique situation," he said. "The problems
there are mainly political -- between two political parties -- and we've
been caught in the crossfire. The land acquisition was not our doing; the
West Bengal government managed that. There was no problem when it
was offered to us or when we accepted. Singur becoming an issue was
an out-of-the-blue happening. The solution lies in sitting down with the
state government and talking about compensation, retraining,
reemployment and the rest, with Tata Motors being made a party to this
activity. Instead, what we've got is a chorus of negatives, loose talk of
returning the land, women and children blocking roads, and guns, bullets
and firings."
The state government has offered to provide 400 fertile acres elsewhere
in the state to the agitating farmers, but there are no takers. Banerjee,
herself, believes she is on a winning horse politically and is not prepared
to make any concessions. In 2007, she had witnessed the popular appeal
of the land issue when trouble broke out over a proposal to set up a
chemical hub over 14,000 acres in Nandigram, a rural area 70 km from
state capital Kolkata. This was to be situated in a special economic zone
(SEZ), a 50:50 joint venture between the state-owned West Bengal
Industrial Development Corporation and the Salim Group of Indonesia.
It was once again Banerjee's Trinamool Congress that campaiged against
land acquisition. The protesting villagers and farmers took over
administration of the area, under the banner of the Bhumi Uchhed
Pratirodh Committee (Committee against Land Evictions). On March
14, 2007, some 4,000 armed policemen were ordered to move in. At
least 14 people died in clash. The site of the proposed chemical hub has
since been moved from Nandigram. Meanwhile, in subsequent elections
to the zilla parishad (a district-level governing body), the Left was badly
beaten by the Trinamool -- the first time in 30-plus years that the
Marxists have lost in the region.
"All players are trying to revise their understanding of the ground
realities based on what they have witnessed in the past few weeks," says
Chakrabarti of ISB. "It is a political-economy kind of problem." He
adds, however, that part of it is also pure saber-rattling. "The companies
are just taking a stance and putting pressure on the political players
because they know that the politicians want their investments."
There have been no corporate casualties as yet, but there are some
indicators of trouble. "We are yet to take any decision," says Infosys
director of human resources T.V. Mohandas Pai. "We will have to
relook and rethink because we are concerned about the safety of our
employees." Infosys, the country's second-largest information
technology company, has been planning to invest $110 million on a
software development park near Kolkata. It has yet to receive the 80
acres promised by the state. The Times of India reports that another IT
giant -- Satyam -- has decided to pull out of a special economic zone
(SEZ) it was planning to set up in West Bengal.
"What impact this episode has on other corporate investments into West Bengal depends on what
stage of finalization their plans are in. But it will certainly be a dampener on new players coming
into the state, especially because the controversy has been [going on] for such a long time and
has also gotten so much publicity," says Chakrabarti. "At the same time, one also needs to realize
that not all investments require large amounts of land. Also, there are other players who have
done their own land acquisition without getting the government involved. It is only when the
industrial players try to cut a deal with the ruling government and the opposition manages to
launch a strong enough protest that all hell breaks loose."
An Impact on Investments
India Inc. is worried about the impact on investment flows. According to a statement by Reliance
Industries chairman Mukesh Ambani: "A fear... is being created to slow down certain projects of
national importance. The Nano project is a unique and innovative initiative which will establish
India's position as a small car hub. Indian Industry must be encouraged to make such large
investments in order to build the country's competitiveness as well as support job creation."
"The Nano car is a statement of the coming of age of Indian manufacturing, and places India's
innovation skills high up on the world map," says Jamshyd Godrej, chairman and managing
director of Godrej & Boyce and past president of the Confederation of Indian Industry (CII). "It
is, therefore, very unfortunate that the entire project is facing a political situation which it does
not warrant." Nano's moving out would be a setback for not just West Bengal but also the entire
country, says Godrej. Adds CII chief mentor Tarun Das: "The adverse impact is not restricted to
Singur or West Bengal but will resonate in India's global image."
"Any delay will jeopardize the general investment climate in the country by undermining the
confidence of foreign investors in the present difficult times, when a severe recession is
threatening the global economy," says Indian Merchants Chamber president M.N. Chaini.
Even Union Commerce and Industry Minister Kamal Nath is concerned about the impact on
investor confidence, particularly in West Bengal. "We have to attract investments," he says.
"Incidents and such events obviously shake the confidence of the investor, especially in the
particular state in which it is." India hopes to get $40 billion in foreign direct investment (FDI)
this year; in the January-June period, the actual FDI inflow was $20 billion.
Will the Nano effect impact this? "While the Singur issue has made headlines the world over, I
don't think this will be a very major issue at an international level," says Chakrabarti. "Many
other states have invited the Tatas to set up the Nano plant."
Multiplier Effect
Will the Nano's problems hurt the Indian automobile industry and its ability to fuel economic
growth elsewhere as in the U.S. or other developed economies? MacDuffie feels that while the
two situations are not strictly comparable, there could be lessons for India in the area of
infrastructure investments. "A lot of what made that multiplier effect possible in the U.S. post-
war economy was the decision by the federal government and the willingness to use some of the
riches of those post-war years to invest very heavily in infrastructure. That allowed the car to
have a transformative impact on a lot of the economy, on where people lived and on how they
spent their leisure time and the like," he says.
MacDuffie points to the construction of the U.S. interstate highway system as one of the most
visible manifestations, adding that many other public investments increased the economic
feasibility of dispersed growth into the suburbs possible. "There were deliberate choices to invest
in infrastructure for the automobile rather than for mass transit and railroads and such -- of
course with the auto companies trying to influence that. If the government of India really wanted
to gain that kind of multiplier effect they would need to be willing to make similar investments
in infrastructure."
Even as the controversy was at its height, non-resident Indian (NRI) and steel baron L.N. Mittal
was holding a meeting of the company's top managers in Delhi. "One can face this kind of
problem in any other country," said Mittal of Singur. "But the country as a whole is interested in
growing. [Singur] does not give us nightmares. And we will not revisit our plan in India because
of the Singur episode."
Mittal admitted, however, that his projects were facing some roadblocks. He plans to set up two
integrated steels plants in the states of Orissa and Jharkhand. But land acquisition, mining
permissions and other approvals have kept the projects on the drawing board. The cost of the
plants, announced in 2005 and 2006, has ballooned from $20 billion to $30 billion. "The more
the delays, the more the cost overruns," says Mittal.
Another NRI, Vedanta Resources chief Anil Agarwal, has also expressed his confidence in India.
He has just announced a $9.8 billion global investment plan; of this, $7.6 billion is earmarked for
India.
Antiquated Land Laws
But even as the world keeps knocking at India's doors unfazed by Singur, there is a larger
question that the controversy has given rise to: the whole issue of land acquisition. "We certainly
need to revisit the land acquisition law," says Chakrabarti. "It is very antiquated particularly
because it does not take into account major projects that change the value of land dramatically.
The current law still works fine if one wants to build a road or railway that needs just a small
stretch of land, but it does not fit the current situation of acquiring land for industrial purposes."
The law dates back to 1894; although there have been amendments, they have clearly been
inadequate. Companies and governments have taken their own route, depending on
circumstances.
The Jindal Group, for instance, is setting up a steel plant in Salboni in West Bengal. It has paid
compensation up front. It has also offered free shares in the new company to all the people
dispossessed of their land. Sajjan Jindal, vice-chairman and managing director of JSW Steel,
says that had he been in Ratan Tata's shoes, he would have offered the recalcitrant farmers
double their holdings nearby. But Jindal had it relatively easy. At Salboni, some 90% of the
4,800 acres required was already with the state government. It was possible to be more than
generous with the other owners.
Yet, despite their very high standards and ethics, the Tatas seem to have been embroiled in more
than their fair share of land acquisition rows. Among projects in suspended animation or
abandoned are a $550 million titanium project in Tuticorin in Tamil Nadu, several projects in
Orissa steered by Tata Steel, and a port in the same state in partnership with engineering giant
Larsen & Toubro. At Kalina Nagar in Orissa, where a $3.4 billion steel plant has been planned,
there were violent clashes between the police and tribals. Some 14 tribals were killed in police
firing in January 2006. (Incidentally, in July of this year, the Tatas also pulled out of four major
projects in Bangladesh, which borders West Bengal. The $4 billion plan had made no progress
since proposed in 2004.) For the Tata Group, the sun is setting in the east.
MacDuffie recalls another such crisis in Brazil in the mid-1990s, when the rules of the game
suddenly changed for the automobile industry. Encouraged by strong economic growth at the
time, the Brazilian government offered favorable tax treatment to small cars with engines below
a certain size. "Suddenly, that part of the market just took off," he says. "All of these
multinational companies came flooding in to build capacity in Brazil."
According to MacDuffie, a wave of optimism ran across the global automobile industry that
Brazil would go on to offer generous government subsidies to open new plants. The unions too
were willing to be "somewhat flexible in allowing innovative work arrangements," he recalls.
"Suddenly there were multinationals that were trying out innovative production concepts in
Brazil that they hadn't ever tried in their home countries. Volkswagen opened what they called a
modular factory and General Motors followed suit with something similar."
All that enthusiasm was short-lived, and the Brazilian government withdrew those incentives.
Havoc followed. "In a very short period of time, lots of companies had all these unused
capacities," says MacDuffie, adding that the momentum was such that the investments kept
pouring in even after the favorable market conditions shifted. "They just couldn't shift gears
quickly enough to withdraw and the consequences were paid later."
Among the casualties in Brazil was a joint venture Chrysler and BMW had formed to build an
engine plant, MacDuffie notes. "That got started late, and it just absolutely never got off the
ground and eventually it was closed and all the equipment was sold to a Chinese firm."
In India, other business houses are also facing unexpected changes in the playing field after
making initial investments in projects. South Korean Pohang Steel's $10 billion steel plant at
Jagatsinghpur has run aground over acquisition of forestland. Goa has scrapped all the SEZs --
15 had been planned -- after agitators against the takeover of farm and forest land threatened to
target tourists, the lifeblood of the state. The same scene is being played out in many parts of the
country. In early September, villagers in Potka (Jharkhand) humiliated and publicly paraded
surveyors of Bhushan Steel & Power. The company wants 3,400 acres for a proposed steel and
thermal power project.
"The crisis faced by the Nano project will certainly lead to major problems with other mega
projects, like the $2.7 billion Nandagudi SEZ in Karnataka, the $6.6 billion Raigad SEZ in
Maharashtra, the $2.6 billion Dadri (power project being implemented by Anil Ambani's
Reliance Energy) in Uttar Pradesh, the $8.7 billion Gurgaon-Jhajjar (gas pipeline project) in
Haryana, and the $8.8 billion (Arcelor-Mittal) Keonjhar project in Orissa. India at this stage can
ill-afford such a loss," says Chaini of IMC.
There are no easy answers. In Maharashtra, at the Reliance SEZ project in Raigad district, a
referendum is being conducted in 22 villages. Farmers will be voting on whether to give up their
land. Reliance wants 25,000 acres for this mammoth project. The polling is a state government
initiative; as with the Tatas at Singur, Reliance has been kept out of the loop.
Reliance has been negotiating with the farmers on its own, unlike at Singur where the state
government is doing the job. As with Singur, one of the issues is compensation. Reliance is
offering Rs. 1 million ($21,900) per acre; the farmers say the land is worth four times as much.
In Singur, farmers were paid $18,600 per acre of single-crop land and $26,250 for double-crop
land. That was a premium, to-the-market rate. But, with the Nano plant making progress, the rate
shot up to $87,500 per acre. The farmers feel they have been taken for a ride. Every project that
involves land acquisition will, going forward, most likely face resistance; farmers will hold out
for a better deal. In Singur, only 1,200 farmers out of 12,500 with less than 300 acres have not
accepted the compensation.
According to Jindal of JSW, this is the reason dispossessed farmers should be made shareholders
in the project. Tata has offered jobs and training, but that is clearly not enough. The Singur
controversy continues, and agitation is likely to resume.
The Economic Times, meanwhile, contends that even the Leftists now feel that they are better off
without the Nano. If they give in to Banerjee's demands, they will -- as in Nandigram -- lose
seats to the Trinamool Congress in the coming general elections. On the other hand, if they
sacrifice the Nano, they can blame the party for any setback to the state's industrialization efforts.
Whatever the rhetoric might be, new jobs will only come from factories, not farms.
"Whether Tata stays or goes, both will be favorable for us politically," says West Bengal
transportation minister Subhas Chakraborty. "If Tata stays, we take the credit and if they pull
out, we will blame the Trinamool."