The decision by the Indian carmaker Tata Motors to move a factory from West Bengal State in the wake of violent protests may affect the broader investment climate in the country, deterring foreign investors and denting economic growth, analysts said.

Violent demonstrations by farmers whose land was taken by the state for the construction of the Nano car plant led Tata, the country's top vehicle manufacturer, to pull out of the project Friday after a last-ditch meeting with the state's chief minister.

Analysts said that although the immediate economic fallout would be limited to West Bengal State, the pullout could have wider repercussions as more states could adopt a harder anti-industry tone for political gain.

"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 was asked to stop construction work in Maharashtra State, home of the country's financial capital, Mumbai. And Reliance Industries, one of the leading Indian companies, faced violent protests last year.

A South Korean steel company, Posco, is facing protests over the acquisition of forest land for a $12 billion plant in Orissa. Goa State dropped plans to build special economic zones after protests by political parties.

Analysts said that Indian industrial activity, already slowing because of tight monetary policy and weaker economic growth, could be further harmed by such protests. A study in August by the country's central bank found that private Indian companies would invest 1.73 trillion rupees, or $37 billion, in new projects in the 2008/2009 fiscal year, a 30 percent decline the previous year.

"Politicians in this country must choose" between "perpetuating poverty to gain votes," Bhaumik said. "You cannot have 9-percent plus growth if you bar your companies from making investments."

Industrial output in India is mostly for the domestic market and accounts for about one-fifth of gross domestic product, helping the economy expand at an average rate of 8.8 percent in the past five fiscal years.

But economists said that Tata's decision to abandon the Nano plant in West Bengal would be a severe setback to the development prospects of the state, which already languishes behind other states in terms of investment.

West Bengal attracted 60 billion rupees in investments in 2007/ 2008, less than a tenth of the investments attracted by the leading state, Gujarat, according to a study by the Indian central bank.

An editorial in The Indian Express newspaper Saturday said that the withdrawal by Tata was a grave loss for West Bengal. "A door to its future has just closed," the daily said.

The pullout was also seen as an embarrassment for India at a time when it is trying to attract foreign investors to help sustain growth. It came in the same week that the United States approved a landmark nuclear deal expected to lead to growing interest from U.S. companies 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, which represents around 90,000 companies.

"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 the brokerage firm Icici Securities, said the pullout highlighted the troubles of land acquisition by the government for industrial activity, which Prasanna said would be best left to 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.

Originally published by Reuters.

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