Tata has abandoned the partially completed factory that was to build the world's cheapest car, the £1,250 Nano, following months of violent demonstrations from local landowners.

The move will cost the Indian conglomerate as much as $350 million in investment that will now be written off plus an additional $100 million in relocation charges, analysts estimated. Indian business leader fear it also deals a severe blow to India's standing as an emerging industrial power.

"You cannot run a plant when bombs are being thrown, you cannot run a plant when workers are being intimidated," the Tata chief executive Ratan Tata said.

Protestors had besieged the factory, in Singur in the state of West Bengal, for weeks, claiming that hundreds of acres earmarked to be used for ancillary operations had been illegally taken from smallholders by the communist-led state government.

Work at the plant, which was to produce 250,000 cars a year initially, finally ground to a halt in early September, when Tata said it was too dangerous to send its workers to the site following a series of confrontations with protestors.

Tata, which also faces a struggle to return its recent purchases Land Rover and Jaguar to profitability amid a global economic downturn, was unable to comment on when the Nano will now make its debut.

The ultra-cheap car was first unveiled in January when its super-thrifty engineering was hailed as a breakthrough that would transform the global auto industry. Since then the Singur crisis and the soaring cost of raw materials have threatened to scupper the project's viability.

West Bengal's leftist leaders fought hard to host the plant, both for the jobs it would bring and for the message the Nano project was supposed to send the world: that India was open for business and capable of matching the manufacturing might of China.

Today, as the plant was finally abandoned, Tata insiders admitted that the project had become a PR disaster.

Mr Tata blamed Mamata Banerjee, a prominent political figure who had spearheaded the protests. "If someone had put the gun to my head I would not move away but I think Banerjee has pulled the trigger," he said.

The Singur issue had become emblematic of the struggles India faces in turning agricultural land, on which two thirds of the population relies for a living, to industrial use. Commenting on the Nano debacle, Anil Ambani, India's richest man, who has also faced business hurdles in West Bngal, recently claimed that a "fear psychosis" was being created among the public by political interests who wanted to damage projects "of national importance".

Other companies, including Posco, the Korean steel maker, and Vedanta, the London-listed miner, have been embroiled in similar stand-offs in India this year.

Marut Sengupta, of the Confederation of Indian Industry, said of the decision to quit Singur: "This creates a negative image about India and will not help foreign investment. It is very unfortunate that politics has won over economics."

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