BGS Case Anurag Khandelwal 1611009 Section A

Did Tata make mistake by believing in West Bengal Government's assurances of smooth business operations? Are
they making same mistake in accepting Gujarat government's invitation to relocate in their state? Why? Why not?
When Ratan Tata stated his vison for the lowest priced car [2] in the world, multiple state governments invited Tata
Motors for setting up manufacturing plant in their states. States envisaged industrial growth and offered special
tax exemptions and other incentives.
Tatas decision to accept West Bengal governments invitation in 2006 and later Gujrat governments invitation in
2008 can be examined by appropriateness in parameters mentioned in the table below:

West Bengal in 2006 Gujarat in 2008

Incentives offered by 997 acres [1] of land with fiscal incentives
government
Track record of CPI(M) traditionally a socialist party,
government surprising departure to a capitalist move
Political environment Strong opposition leader - Mamata Banerjee,
in state Destructive political environment of
confrontation and agitation [1]
Due diligence by TATA Accepted government offer on face value and
did not analyze supply side issues. Tata went
ahead with production even when protests
were started soon after announcement of
Nano Project.
State allocated agricultural land and farmers
agitation for improper compensation was
justified.
1100 acres [2] of acquired land with
similar investments as West Bengal
Developed state, generating 20% of
Indias industrial output [2]
Absence of strong mass leader in
opposition party, Modi government
was voted back to power in 2007
Farmers have filed similar case
asking for more compensation
within 2 months of announcement
[2]

Land is a state subject under constitution of India. Though each state has its own set of regulations, fundamental
problem is with the land acquisition process outlined by land acquisition Act, 1894 and 1984 [1]. The process has
huge scope of interference from middlemen and corrupt politicians because of which farmers are most of the
time under-compensated for their land, resulting in agitation and unrest. Given the nature of the law existent in
2006 and 2008, there were always chances that whichever place Tata might have chosen, some set of farmers
would have been affected. Moreover, Tata, being a company known for its contribution towards Indian society,
has moral obligations to not let farmers affected because of their business.
The state governments track record and
political environment of the state help in Va l u e o ff e r e d c o m p a r i s i o n
identifying whether the government has
successfully dealt with such issues in past W.B. in 2006 Gujarat in 2008

with collective and consensus based

negotiation with all stakeholders in business
and society.

As explained in the table above, while two

governments offered similar incentives, track
record and political environment in Gujrat is
more favorable than the same in West
Bengal.
Hence, Tata Motors did make mistake in believing West Bengal governments assurance and they are doing the
right thing in accepting Gujarats government proposal. However, they should first strike a consensus with
farmers before getting into project setup.
[1]
Laura Alfaro, Lakshmi Iyer, Special Economic Zones in India: Public Purpose and Private Property (A), HBS
[2]
Laura Alfaro, Lakshmi Iyer, Namrata Arora, Tata Motors in Singur: Public Purpose and Private Property (B)
BGS Case Anurag Khandelwal 1611009 Section A

[Word count: 450]

Has the SEZ policy been a good development strategy for India? Why? Why not?
SEZ Act of 2005 was notified in backdrop of following challenges faced by businesses, government and society:

Business Government Society

Ease of doing business [1]
Skill shortages [1]
Restrictive labor laws [1]
Limited Credit availability
High Taxation and duties
Moderate corporate investment in
India, lagging FDI inflows
manufacturing sector share in GDP
stagnant (22% (80) to 25% (06))
High fiscal deficits (6.4% FY06) [1]
45.5% land area uncultivable
Employment
Skill development for
manufacturing sector jobs
Farmers disappointment with
liberalization [1]
High inflation & cost of living

SEZ policy attempted to solve many of above challenges in two ways

a. Create institutional support for starting up and doing business single window clearances [1], SEZ
Open houses [1] to signal opportunities for FDIs and domestic investments
b. Provide incentives tax, regulatory and infrastructure [1] to attract investors to locate in islands of
economic activities [1].
Without established institutional strengths, fiscal incentives do not work in long run. Within 3 years, 294 firms got
notified providing employment to 97,993 people with 693.5 billion Rs private investment (Exhibit 11) [1]. Though
SEZ policy helped government in attracting investors, it has following pitfalls
a. Gaps in Demand and Supply: While government was able to generate sufficient demand from SEZ
developers, supply side issues were not improved:
o Land did not get any importance till agitations started and halted multiple SEZ products
(Nandigram, Singur, Raheja Developers in Haryana [1]).
o Land marketability remained worrisome (local zoning rules, land ownership issues, improper
prior documentation of lands, unrecorded cash payments [1])
b. Inefficient market structure: Governments idea of compensating [1] farmers made market inefficient
in following ways:
o Farmers should have been given a share of potential gains that new owners of land would have
got in next few years.
o Since, original owners (farmers) were not made part of future revenues from land, middlemen
exploited farmers and gained huge profits unethically.
o Since govt. was a party in compensation, it should have carried out independent valuation of
lands so that farmers could have got reasonable price.
c. SEZ turning into land scams [1] investors started using land for real estate business.
d. Linkage of islands with non-islands [1] - Government should have introduced plans to implement
learning from SEZ to outside areas for a more balanced economic growth.
e. Labor and employment issues
o Displaced farmers were not skilled enough to take up jobs in manufacturing sector.
o Companies found difficult to attract employees to far-off locations in cities.
f. In Many SEZ (e.g. Nandigram), fertile lands were used.
g. The SEZ growth remained confined to southern and western part of country. Eastern states did not
develop with this strategy (Exhibit 10[1])
Hence, SEZ policy failed to address many societal issues outlined in table above and did not provide sufficient
help for businesses. SEZ has not been a good development strategy and could be much better if supply side

[1]
Laura Alfaro, Lakshmi Iyer, Special Economic Zones in India: Public Purpose and Private Property (A), HBS
[2]
Laura Alfaro, Lakshmi Iyer, Namrata Arora, Tata Motors in Singur: Public Purpose and Private Property (B)
BGS Case Anurag Khandelwal 1611009 Section A

execution issues are identified early and consensus based negotiation (e.g. Kerela [1]) is used to expedite stalled
projects. [Word count: 499]

[1]
Laura Alfaro, Lakshmi Iyer, Special Economic Zones in India: Public Purpose and Private Property (A), HBS
[2]
Laura Alfaro, Lakshmi Iyer, Namrata Arora, Tata Motors in Singur: Public Purpose and Private Property (B)