Tata plant move may affect India investments, growth
MUMBAI (Reuters) - The decision by India's Tata Motors Ltd to move a factory out of West Bengal state after violent protests may affect the broader investment climate in the country, deterring foreign investors and denting economic growth.
Violent protests by farmers whose land was taken by the state for the construction of the low-cost Nano car plant forced Tata Motors, the country's top vehicle maker to pull out on Friday after a last ditch meeting with the state's chief minister.
Analysts said though the immediate impact would be limited to the state of West Bengal as the Tatas move to a more industry-friendly state, it would have wider repercussions as more states may adopt a harder anti-industry tone for political gains.
"Though West Bengal is different from other states in showing it can throw out established industrial houses for political mileage, it may be the start of a very dangerous broader trend which does not bode well for the economy," said T.K. Bhaumik, chairman of the economic affairs committee at ASSOCHAM, an industry body.
In September, an Indian unit of Dow Chemical Co was asked to stop construction work in the Maharashtra state, home of the country's financial capital and Reliance Industries , the country's most valuable firm faced violent protests last year over its retail foray.
South Korean steel firm POSCO <005490.KS> is facing protests to acquire forest land for a $12 billion plant in Orissa and Goa dropped plans to build special economic zones after protests from political parties.
Analysts said industrial activity which is already slowing due to tight monetary policy and weaker economic growth may be further affected by such protests.
A study in August by the central bank showed Indian private firms will invest 1.73 trillion rupees ($37 billion) in fresh projects in 2008/09, a 30 percent decline from 2.45 trillion rupees in 2007/08.
"Politicians in this country must choose over perpetuating poverty to gain votes or pursuing economic development and you cannot have 9-percent plus growth if you bar your companies from making investments," Bhaumik said.
Industrial output is mostly for the domestic market and accounts for about a fifth of gross domestic product, helping the economy expand at an average 8.8 percent in the last five fiscal years.
But economists said the scrapping of the Tata plant would be a severe setback to the economic prospects of the state of West Bengal which is already languishing behind other states in terms of investment.
West Bengal attracted 60 billion rupees in investments in 2007/08, less than a tenth of the investments attracted by the leading state, Gujarat, a study by the central bank showed.
An Indian Express editorial on Saturday said the withdrawal by the Tatas from Singur was a grave loss for West Bengal.
"A door to its future has just closed," the daily said.
LOSS OF FACE
The pull-out is also seen as a loss of face at a time when India is trying to attract foreign investors to help it sustain growth in the same week the U.S. approved a landmark nuclear deal which is expected to lead to a spurt of interest from U.S. firms in the local energy sector.
"This creates a negative image about India," said Marut Sengupta, director of economic policy at the Confederation of Indian Industry representing around 90,000 firms.
"It is very difficult to say what foreign companies would do on investment decisions but this certainly will not help," he said.
A. Prasanna of ICICI Securities said the pull-out highlighted the troubles of land acquisition by the government for industrial activity, which would best left to individuals and private companies.
"The bigger issue is of transparency in land acquisition and all stakeholders including the government and the industry must come together to find a solution for it," Prasanna said.
($1=47 rupees)
(Editing by Lincoln Feast)