To the opposition parties and activists who had set up camp outside Tata Motors' factory in Singur, West Bengal, the state government's decision to award more land to farmers resisting the plant was a watershed. “This is a historical victory,” said Dinesh Trivedi, a senior figure in opposition party Mamata Banerjee. “Mamata Banerjee will emerge as the leader of the farmers all across India. You cannot have industrialisation on the bloodstains of poor people.”

But for the scores of companies striving to start new industrial projects across India, it made for a terrifying precedent. Banerjee's two-week siege at Singur has endangered India's most iconic industrial project — the Tata Nano, the world's cheapest car.

In a bid to head off the crisis, Tata belatedly decided yesterday to back the West Bengal government's package in the hope of winning over the moderates. The government wants to improve villagers' compensation for giving up their land. That still may not mollify Mamata Banerjee, which is planning another big protest rally tomorrow.

“This is already beginning to delay our industrial progress,” said Arindnam Bhattacharya at Boston Consulting Group in Mumbai, an expert on Indian manufacturing. “A lot of large projects are getting set back because of this issue of land acquisitions.”

UK-based industrialists Lakshmi Mittal, Anil Agarwal and Lord Swraj Paul all have huge projects at risk. Agarwal's London-listed mining company Vedanta, is expected to see renewed protests against its planned bauxite mine in the state of Orissa after India's Supreme Court this month gave it the go-ahead following a three-year enquiry.

Villagers on the site of steel giant Arcelor-Mittal's £5 billion steel project in Jharkhand have said they will reject the state government's resettlement package. Paul's engineering firm, Caparo, has built a plant at Singur to supply Nano's body components.

Tata also faces protests elsewhere, against its planned Dhamra port in Orissa, which threatens an endangered turtle, and against a steel plant at Kalinganagar. South Korea's Posco is struggling to buy land for a $12 billion steel plant — which is set to be the largest such plant ever built.
Success for the blockade at Singur will give new impetus to these protesters, and give any international company planning big industrial plants pause for thought. Indonesia's Salim Group last year had to abandon a planned 10,000-acre chemicals plant after bloody battles between West Bengal's government and Trinamool-backed protesters killed 14.

“People will now be a lot more sensitive to the land issue and will weigh their location much more heavily than before,” says Sapan Parekh, chief executive of SKP Group, a Mumbai-based consultancy which advises international companies on setting up in India. “The farmers' lobbies are gaining strength in India. It may deter heavy engineering and the large-scale manufacturing industry.”

When India sprang back into global business in the late 1990s, much was made of the country's mis-shapen economy — with its vast agricultural base, thriving IT and outsourcing industry, and old-fashioned, underdeveloped manufacturing sector. But in the last decade, that began to change. Tata Motors' unveiling of the Nano in January, followed by its acquisition of Jaguar and Land Rover, was the point at which India's new industrial strength came to world prominence.
But carmakers have been shifting to India since the end of the 1990s. Volkswagen and General Motors are both building car plants near the city of Pune, as is Renault — in partnership with Indian motorcycle company Bajaj. Daimler already has an assembly plant for Mercedes in the region. Nissan plans a new factory near Chennai — the other contender to be India's carmaking hub, where Hyundai, Ford, BMW, and Caterpillar all already have factories.

None of these has suffered anything close to Singur's problems, showing that it can be done right. Partly, this is a matter of selecting the best location. The states of Maharashtra and Tamil Nadu are nothing like as strike-prone as states like West Bengal or Kerala. But it's also the risk that once a situation becomes heavily politicised, as in Singur, the breach becomes very hard to heal. “It's not that difficult to get it right,” says Roddy Sale, a British investment banker in Mumbai, who advised BHP Billiton and other mining companies on setting up in India. “But once you've got it wrong, even in a small way, then it's almost impossible to correct it.”

Sale argues that companies should aim to buy directly from the farmers, rather than using the state governments as intermediaries — as Tata, Posco and Vedanta have done. He says companies should study the villages, sacred areas, and political organisations at the site in detail, years ahead of starting any work.

Adding to the problem, ever since the days of Gandhi, a large section of India's politicians have idealised both India's villages and the idea of grass-roots struggle. It's no accident that at Singur, Mamata Banerjee compared herself to Gandhi.

Already Banerjee has made significant headway which seems certain to win her party huge numbers of rural voters. That is why Tata Motors' decision yesterday to accept a deal drawn up by West Bengal's Communist government was hugely significant.

By seeking compromise, Tata is hoping it will not be forced to shift the Nano plant to one of the four states that have offered it a new home — at considerable financial cost. But there are grave dangers. The drama at Singur means other industrial schemes, Indian or international, could also be hostage to rabble-rousing politicians, across India.