Tata Nano exit shows power of state politics in India

By Rina Chandran

MUMBAI (Reuters) - Tata Motors' exit from West Bengal state after protests against a factory for its low-cost Nano car is a sign companies investing in India will need to pay heed to state politics and villagers in the large, complicated democracy.

Tata Motors, India's biggest vehicle maker, on Friday said it was pulling out of the eastern state after having suspended work for more than a month in Singur, where it had planned to make 250,000 units of the Nano from around October.

Protests by farmers unhappy with the compensation paid for their land by the state had led to a blame game between the state government and the main opposition party that backed the farmers.

But for investors in India, the lesson may be that state governments and companies will have to pay more attention to the needs of farmers in a country where industrialisation pressures are mounting.

"It is not that difficult to do," said V.K. Jairath, an infrastructure consultant in Mumbai, pointing to states such as Maharashtra, Tamil Nadu and Gujarat, where large industrial projects are underway with little or no opposition.

"Ultimately, states have to come up with clear policies. Companies also have to get involved in the land acquisition and compensation procedure, alongside NGOs who can liaise with farmers and other stakeholders," he said.

Unlike China for example, analysts say that India's democracy of 1.1 billion plus people means industrial projects cannot just bulldoze through villages opposed to plans.

"In China, for example, if they say it will be done, it gets done," said Mohit Arora, a senior director at auto consultancy JD Power & Associates in Singapore.