Tata halts world's cheapest car production after land protests

Violent clashes erupted in West Bengal today after India's top motor manufacturer announced it had ceased production of its revolutionary new 'Nano' car.

The Nano, which is known in India as the 'One Lakh Car' (one hundred thousand rupees or £1250), is expected to be the cheapest mass market family car in the world when it goes on sale later this year.

When its creator, Ratan Tata, who launched successful takeovers of Jaguar, Land Rover, and British steelmaker Corus over the last two years, unveiled his 'People's Car' in January, he took the international motor industry by storm. The Nano, he said, would bring car ownership within reach of India's 300 million-strong middle class - in particular the families which now pack up to five members on a single motorbike.

But he has failed to win over the poor peasants and farmers close to the production plant in Singur, West Bengal, who claim they were forced from their land by the state government and denied adequate compensation.

The farmers' campaign was taken up by the opposition Trinamul Congress Party which resulted in months of violent protests. Last month its leader Mamata Banerjee mobilized 30,000 supporters and called for an indefinite siege of the plant. Roads were blocked and 40,000 riot police drafted in.

Last week, Ratan Tata said he would abandon the Singur plant and write off his $350m investment if the demonstrations did not stop. By last night, Tata had decided they were ready to move. The company said it was 'constrained to suspend the construction and commissioning work at the Nano plant in Singur in view of the continued confrontation at the site'.

For the Communist-led West Bengal state government, the decision is a major setback in its campaign to change its image from an impoverished union-dominated, strike-bound state hostile to investors, to a business-friendly one focused on improving living standards. Tonight the state's Industry Minister, Nirupam Sen said: "This is a very bad day for West Bengal."

For the farmers themselves, Tata's withdrawal could be the worst case scenario, in which they are unlikely to see their land returned, but still lose out on the new jobs and boost to the local economy Tata would have provided.

Hours after the Tata announcement, there were reports that a villager had committed suicide outside the factory gates, fearing his sons would be out of work. Previously, six farmers committed suicide when their land was acquired by Tata.

The move also highlights a broader problem for India as the country seeks to spread industrialization throughout its poorer states and boost exploitation of its rich mineral resources: Land disputes are becoming an increasingly common feature of trying to do business in the country.

Despite the hardship faced by Indian farmers which results in hundreds of suicides every year, there is a deep emotional attachment to the land and the challenge is how to persuade the 700 million-plus people who rely on agriculture to part with their land to make way for industry and embrace alternative employment.

Today Ratan Tata said it was time for the rural poor to choose between the farming of the past and the industrial development of the future. "As each generation develops, the children of the rural economy must decide whether they want to continue to work on the farms," Ratan Tata, chairman of the Tata Group, said today. Despite Tata's own setback, he continued to believe they would eventually embrace the new forms of employment India needs.

A statement said Tata would be "evaluating alternative options' but careful wording leaves Tata the option to change his mind if the protests subside. There are already signs that the opposition party is backing down and may be willing to compromise.

"We've made a huge investment," Tata said yesterday "We'd like to stay."