MUMBAI // The giant Tata group is braced for a protracted legal battle to recover its 5 billion rupee (Dh407 million) investment in a car factory in eastern India it was forced to abandon three years ago after violent protests by local farmers.
Tata suffered a major setback yesterday after a court rejected its plea for an interim stay on the government's decision to return the 403-hectare plot back to farmers. The group plans to appeal against the court verdict this week.
On Sunday, the government of West Bengal, led by Mamata Banerjee, began distributing forms to hundreds of farmers backing their action, at the project's site in the village of Singur. The farmers claim they were forced by Tata to sell their land for its factory.
The company had planned to launch the Nano, a US$2,500 (Dh9,182) pint-sized hatchback, claimed to be the world's cheapest four-wheeler, from Singur, but was compelled to shift the factory to the state of Gujarat after a virulent protest campaign in 2008 spearheaded by Ms Banerjee.
Ms Banerjee, who swept to power in West Bengal last month with a thumping majority after 34 years of communist rule, is said to have drawn much political mileage from the campaign. The move to hand back land to farmers is widely seen as political payback to voters.
"The decision to return land will have historic ramifications," said Abhirup Sarkar, an economist at the Indian Statistical Institute. "This has not happened anywhere in India [before. For] so long land has only been taken from farmers. But this is the first time that the process has been reversed."
The problems in acquiring land for industry is hardly unique to Tata. Land disputes involving farmers have stalled hundreds of projects around the country and are thwarting government efforts to modernise India's crumbling infrastructure. With cities congested, the only free land available for industry is farmland. But in a country where agriculture is a mainstay, employing more than two thirds of its 1.21 billion people, the government faces stiff resistance from millions of farmers unwilling to part with their land.
An estimated 70 per cent of industrial projects in India are in limbo because of such disputes, according to a report entitled Indian Infrastructure Sector - Paving the Way for Tomorrow's Growth, released jointly last year by Ernst & Young and the Federation of Indian Chambers of Commerce and Industry.
These disputes threaten to endanger investments worth an estimated $100bn across the country, according to a 2009 report by the Associated Chambers of Commerce and Industry of India. "Every company I talk to tells me land titles and land records present some of the thorniest problems they face as they contemplate investing here in India," Jose Fernandez, an assistant US secretary of state, told the Indo-American Chamber of Commercein March.
A $12bn steel mill project - the country's largest foreign direct investment - by South Korea's Pohang Iron and Steel Company, or Posco, received final clearance from the government last month after six years of bureaucratic delays.
But the government was forced to halt the process of acquiring land for the project this month after protests by betel-leaf farmers broke out at the proposed site in the eastern state of Orissa. A $1.7bn project by the UK's Vedantato mine bauxite in the tribal regions of Orissa has been stalled since last year because of environmental concerns and protests.
"Acquiring land for industry in India is problematic largely because of archaic provisions in the practice and the law," says Sebastian Morris, a professor at the Indian Institute of Management in Ahmedabad. "India needs to remove regulatory restraints that stand in the way of fair compensation to landowners."
India's land acquisition policy is defined by legislation enacted in 1894 during British rule. The ruling Congress-led government says it plans to introduce a new land acquisition amendment bill in parliament this year to prevent disputes with landowners.